Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 36

Performance Evaluation in Service Industries

Bay Area Bank estimates that its overhead costs for policy administration should be $30 for each new account obtained and $045 per year for each $1,000 of deposits The company set a budget of selling 20,000 new accounts during the coming period In addition, it estimated that the total deposits for the period would average $43,200,000.

?During the period, actual costs related to new accounts amounted to $572,250 The bank sold a total of 19,200 new accounts.

?The cost of maintaining existing accounts was $18,000 Had these costs been incurred at the same prices as were in effect when the budget was prepared, the costs would have been $17,700, however, some costs changed Also, deposits averaged $45,000,000 during the period.

Required

Prepare a schedule to show the differences between master budget and actual costs.

Step 1 of 3

Cost accounting

This system is designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.

Cost variances

Cost variance is the difference between actual quantities (AQ) multiplied with actual price (AP) and standard quantities (SQ) multiplied with standard price (SP).