Calculating ABC Unit Costs

Community Credit Union has collected the following information for four activities and two types of credit cards:

Activity Driver Classic Gold Activity Rate

Processing transactions Transactions processed 20,000 12,000 $0.20

Preparing statements Number of statements 20,000 12,000 0.85

Answering questions Number of calls 40,000 60,000 2.00

Providing ATMs ATM transactions 80,000 24,000 1.80

There are 12,500 holders of Silver cards and 50,000 holders of Premium cards.

Required:

Calculate the unit cost (rounded to the nearest cent) for Silver and Premium credit cards.

Unit cost for Silver $

Unit cost for Premium $

Unit cost for Silver $ 19.60

Unit cost for Premium $3.52

Explanation:

The calculation of the unit cost is shown below:

(A) (C) (B) (A or C * B) Total cost

Driver Classic Gold Activity Rate Classic Gold

Transactions

processed 20,000 12,000 $0.20 $4,000 $2,400

Number

of statements 20,000 12,000 0.85 $17,000 $10,200

Number

of calls 40,000 60,000 2.00 $80,000 $120,000

ATM transactions 80,000 24,000 1.80 $144,000 $43,200

Total cost

Classic = $4,000 + $17,000 + $80,000 + $144,000 = $245,000

Gold = $2,400 + $10,200 + $120,000 + $43,200 = $175,800

Now unit cost would be

Classic = $245,000 : 12,500 holders = $19.60

Gold = $175,800 : 50,000 holders = $3.52

The classic credit card is assumed as silver whereas gold is a premium credit card