UTILIZING ACTIVITY-BASED COSTING (ABC) TO MEASURE LOAN PORTFOLIO PROFITABILITY IN A COMMUNITY BANK

摘要

This article examines the stages that a community bank adopted to implement an activity-based costing V system by identifying the costs of the three loan categories: commercial, residential, and consumer loans. ABC analysis demonstrates a quantitative cost associated with the risk premium assigned to various loans and their effect on portfolio profitability. Activity-based costing has become a prevalent cost method for many manufacturing and production industries since its inception. However, it has only gained exposure to the service industry in the last decade. In practice, the activity-based costing model is applicable to both the manufacturing and service industries. Service companies are ideal candidates for ABC due to their minimal amount of direct materials. They maintain a high level of fixed costs based on personnel who provide indirect support to products and customers.