Study Guide/Practice Problems

Happy Banking Company has ten automatic teller machines (ATM) spread throughout the city maintained by the ATM Department.You have been assigned the task of determining the cost of operating each machine.Management will use the information you develop to evaluate the desirability of continuing to operate each machine and/or changing security arrangements for a particular machine.

The ATM Department consist of a total of six employees:a supervisor, a head cashier, two associate cashiers, and two maintenance personnel.The associate cashiers make between two and four daily trips to each machine to collect and replenish cash and to replenish supplies, deposit tickets and so forth.Each machine contains a small computer that automatically summarizes and reports transactions to the head cashier.The head cashier reconciles the activities of the two associate cashiers to the computerized reports.The supervisor, who does handle cash, reviews the reconciliation. When an automatic teller's computer, a customer, or a cashier reports a problem, the two maintenance employees and one cashier are dispatched immediately.The cashier removes all cash and transaction records, and the maintenance employees repair the machine.

Montly operating costs and info on percentage of time used in activities for a recent month follows:

Routine Trip % Maint. Related %

Operationg Costs:

Supervisor Salray $4,200 60% 40%

Head Cashier Salary 3,000 75% 25%

Associate Cashiers Salary ($1,800 each assoc. cashier) 3,600 50% 50%

Maintenance workers salary ($1,800 each Maint. worker) 3,600 100%

Cahsier's service vehicle-used for routine trips 1,500 100%

Maint. service vehicle-used for maint. activities 1,400 100%

Office Rent and Utilities 2,500 50% 50%

Machine leases, space rent, and utilities ($1,500 each machine) 15,000

Total operating cost for month $34,800

Related Monthly activity info for month:

Machine Round Trips Maintenance Hours

1 30 5

2 90 17

3 60 15

4 60 30

5 120 15

6 30 10

7 90 25

8 120 5

9 60 20

10 60 18

720 160

Additional Information follows:

1.The office is centrally located with about equal travel time to each machine.

2.Maintenance hours include travel time.

3.The cashiers' service vehicle is used exclusively for routine visits.

Using cell referencing will help you track your calculations and help with what-if analysis like for example study guide question e.

a.Come up with the monthly operating costs of a machine when cost assignments are based on the number of machines.Conceptually this is like the plant wide overhead rate per unit.

b.You have determined that ABC would be a more effective costing method.You have decided to split the costs into 3 activities:Routine trip, maintenance, and machine lease-space rent-utilities. Put together an analysis to determine the activity rates for each of the 3 activities. Round answers to the nearest cent.

c.Come up with the operating costs assigned to each machine when activity-based costing is used.

d.How can ABC cost information by used by this banking company to improve overall management of monthly operating costs?

e.What if Machine 10 information was incorrect and instead of 60 routine trips it was 70. What happens to the cost of all the machines?To complete part E copy your completed solution to a new worksheet within your workbook and title it Part 1 E. You should only need to update the routine trips for machine E to determine the new cost structure. Comment on the change.