Question

Activity-Based Costing in a Service Organization

Banctronics Inc. has ten automatic teller machines (ATMs) 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, along with other information pertaining to the vol-

ume and type of transactions at each machine, to evaluate the desirability of continuing to operate each

machine and/or changing security arrangements for a particular machine.

The ATM Department consists of a total of six employees: a supervisor, a head cashier, two as-

sociate 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 transac-

tions to the head cashier. The head cashier reconciles the activities of the two associate cashiers to the

computerized reports. The supervisor, who does not 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.

Maintenance employees spend all of their time on maintenance-related activities. The associate

cashiers spend approximately 50 percent of their time on maintenance-related activities and 50 percent

on daily trips. The head cashier’s time is divided, with 75 percent directly related to daily trips to each

machine and 25 percent related to supervising cashiers on maintenance calls. The supervisor devotes

20 percent of the time to daily trips to each machine and 80 percent to the equal supervision of each

employee. Cost information for a recent month follows:

Salaries

Supervisor......................................................... $ 5,500

Head cashier....................................................... 4,000

Other ($2,100 each) ................................................. 8,400

Lease and operating costs

Cashiers’ service vehicle ............................................. 1,600

Maintenance service vehicle........................................... 1,500

Office rent and utilities ................................................. 4,000

Machine lease, space rent, and utilities ($1,700 each)......................... 17,000

Total ............................................................... $42,000

Related monthly activity information for this month follows:

Machine

Routine

Trips

Maintenance

Hours

1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 5

2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 17

3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 15

4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 30

5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 15

6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 10

7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 25

8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 5

9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 20

10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

18

Total ................................................. 500 160

Additional information follows:

• The of?ce is centrally located with about equal travel time to each machine.

• Maintenance hours include travel time.

• The cashiers’ service vehicle is used exclusively for routine visits.

• The of?ce space is divided equally between the supervisor and the head cashier.

Required

a. Determine the monthly operating costs of machines 7 and 8 when cost assignments are based on the

number of machines.

b. Determine the activity cost of a routine trip and a maintenance hour for the month given. Round

answers to the nearest cent.

c. Determine the operating costs assigned and reassigned to machines 7 and 8 when activity-based

costing is used.

d. How can ABC cost information be used by Banctronics Inc. to improve the overall management of

monthly operating costs?

Answer 1