# Buckeye National Bank Case Study

Submitted By Amoses10
Words: 663
Pages: 3

Case 5-7: Buckeye
National Bank
Group II
Aftab Usmani
Alexander Derevin
Carla Daniels
Shantanu Kumar Singh

Single indirect cost allocation rate: old way
\$ in 1000s
 Indirect costs:
\$2,850
 Total Checks value:
\$95,000
 Cost rate allocation = 2,850 / 95,000
=
\$0.03 per dollar paid

Based on \$ value of checks paid

Old indirect cost allocations: based on \$ checks paid
Checks
in
\$1000s

OH
Allocation
Rate

OH
Costs
\$1000s

% Total

Account

85500

.03

2,565

90%

Retail
Account

9500

.03

285

10%

95000

.03

2,850

100%

Total

Allocations driven by % of total value of checks written

Indirect cost allocation: old system

Assigns costs based on value of checks processed Underlying rational: indirect costs are related to \$ value of checks written
Assumes consistent averages of business and retail check values
Value of checks must be consistent with number of checks written to hold true

Indirect cost per account: old system
Indirect
Costs
\$ in
1000s

#
Cost per
Customer Account s (1000s)

Accounts

2565

50

51.30

Retail
Accounts

285

150

1.90

2850

200

14.25

Total

Profit Margin per account: old system

Accounts
Retail
Accounts
Total

Cost per Accoun t Revenu e per
Account

51.30

40

(11.30)

10

8.10

21.05

6.80

1.90
14.25

Account
Contributio
n Margin \$

Business Strategy based on old system 

Increase retail accounts

Incentives to managers

Signs old system is broken

Revenue increasing at slower rate than expenses Profits declining while retail accounts increasing Allocation distorts actual costs

Business customers likely to have more high value checks than retail customers
Retail customers could have larger number of smaller- valued checks

Teller and call center costs not related to check values

ABC method: activity cost allocations Cost Driver

Process checks Teller
Transaction
s
Service
Calls

Total

Indirect
Costs
(1000s)

Costs per unit 2850

1140

0.40

200

1200

6.00

100

510

5.10

ABC: Indirect cost allocation
Activity Rate / Units unit Retail
1000s

Retail
OH
Applied

Units
1000s

Pay
Checks

0.40

570

228

2280

912

Teller
Service
s

6.00

160

960

40

240

Service
Calls

5.10

95

484.5

5

25.5

Total

1672.5

1177.5

ABC: Indirect cost proportion
Activity Total
Units
1000s

Units
Retail
1000s

Retail %
Total

Units
1000s

Pay
Checks

2,850

570

20%

2280

80%

Teller
Service
s

200

160

80%

40

20%

Service
Calls

100

95

95%

5

5%

ABC: Indirect Cost per account
Applied
Number
Average
OH
Customer Cost per
Account \$
(\$1000s) s
Busines
s
Retail
Total

\$1177.5

\$50,000

\$23.55

1672.5

150,000

11.15

2850

200,000

14.25

Old way vs. ABC indirect cost allocation Old Way
Cost per
Account
\$
Busines
s

\$51.30

ABC Cost Delta % per Chang
Account \$ e \$23.55 \$27.7
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