Buckeye National Bank Case 2

# Buckeye National Bank Case 2 - Sangita Bhattarai Xuejiao...

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Sangita Bhattarai Xuejiao Sun Emily Richardson Zhuo x, Wang Buckeye National Bank 1) A. Indirect Cost Allocation Rate (PDOR): Total Indirect CostsTotal Value of checks processed = , , , , \$2 850 000 \$95 000 000 = \$0.03 per dollar processed B. Total Indirect Cost Assigned to (i) the Retail Customer Line, and (ii) the Business Customer Line: The value of checks processed drives these allocations. C. Proportion of Total Indirect Cost Assigned to (i) the Retail Customer Line, and (ii) the Business Customer Line: (i) Retail Line , , , \$285 000\$2 850 000 = 0.10 x 100 = 10% (ii) Business Line , , , , \$2 565 000\$2 850 000 = 0.90 x 100 = 90% Using the original system, we assign the 10% of the total indirect costs to the retail customer line, simply because they wrote 10% of the dollar value of checks processed. And, likewise, 90% of total indirect costs were assigned to the business customer line, since they wrote 90% of the dollar value of checks. Therefore, the underlying rationale for indirect cost allocation seems to be that indirect costs are incurred proportionally to the dollar value of checks processed by each line of customers. In order to generate “accurate” customer cost information using the original system, we must assume that this rationale is indeed correct. D. Indirect Cost per (i) Retail Account, and (ii) Business Account: (i) Retail Line # Indirect Costs of Accounts = , , \$285 000150 000 accounts = \$1.90

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(ii) Business Line # Indirect Costs of Accounts = , , , \$2 565 00050 000 accounts = \$51.30 E. Average Contribution to Profit per account for (i) Retail Customers and (ii) Business Customers: A manager using the original cost allocation system would likely adopt a strategy that involves attracting more retail customers. The original system indicates that business customers are not profitable for Buckeye National, so naturally, managers would like to avoid opening more of these accounts that do not
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Buckeye National Bank Case 2 - Sangita Bhattarai Xuejiao...

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