QUESTION:

You are required to make a proposal on the potential benefits and costs of implementing an Activity-based costing (ABC) system to determine customer profitability for a local bank, Kangaroo Commercial Bank Limited. The bank currently uses a traditional costing system. The clients of Kangaroo Commercial Bank are regional residents in North Australia. The banks considers extending its operation across some metropolitans, such Sydney and Melbourne, to serve the retail banking and investment demands of its clients.

a) ABC system requires a setting of operational activities and activity drivers. In identifying activity driver which mainly causes costs to be incurred at an activity level, what important factors should be considered? Explain to management why you consider these important. (200 wc)

b. Advise the management of Kangaroo Commercial Bank on the potential benefits and costs associated with implementing an ABC system. (400 wc)