COST ACCOUNTING FOR TRUST OPERATIONS
by Richard C. Raupp Manager, Chicago Office
Presented before the Northwest Association of Trust Officers, Portland, Oregon - May 1971
During the past several months, Haskins & Sells has been writing a new cost manual for the Bank Administration Institute. This afternoon I would like to tell you briefly about the contents of this forthcoming book titled Bank Costs For Planning and Control and discuss the application of this costing approach to trust departments.
In 1951 the Bank Administration Institute published Bank Costs. That manual uses many illustrations and leads the cost accountant through a multitude of computations to arrive at cost. It includes little discussion of the uses of cost or considerations to be made in the cost computation.
Bank Costs For Planning and Control takes a different approach. It states that costs should only be calculated with a particular purpose in mind and that if the purpose of the cost calculation changes, the cost amount may change.
Let us look briefly at the table of contents in Exhibit 1. Part I explains the use of cost by bank management. Part II discusses the costing process and the characteristics of bank costs. "Cost for Planning and Control of Resources" is the title of Part III. Chapter 8 of Part III points out that a responsibility center accounting system is the first step in the installation of a bank cost system and a major source of data for many cost computations. Part IV, "Allocation Techniques," is for the accountants. Not really. If you are going to compute costs for individual accounts you must be concerned with measurement of activity and cost allocation.
Once you have mastered "Allocation Techniques," you are ready to make costs work for you. This is done through profitability analysis, using costs for control, or computing costs as a basis for establishing fees. The discussion of standard costs and data center costs completes the manual and serves to review its more significant arguments.