The Co-Operative Bank

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BACKGROUND The Cooperative Bank, a wholly owned subsidiary of Co-operative Wholesale Society (CWS) became a settlement bank in United Kingdom by 1975. The bank was having an impressive growth and enjoying an increasing customer base until 1990 when the bank recorded losses due to the recession in UK. The bank was in the process of a strategic overhaul. The management identified the need to be much more focused. The bank had too many products for the customer base it was catering. So the target was to identify the profitable and non-profitable products and customers and devise the appropriate strategic plans to increase its profit levels. THE PROBLEM The organization is facing with a high cost-income ratio and hence as a result was suffering operational losses. FLAWS IN TRADITIONAL COSTING SYSTEM • Cost centers were geographical and departmental • Center HQ expenses were allocated to operating expenses. This approach couldn’t identify and relate the activity costs to the respective products. So, project SABRE (Sales and Business REngineering) was launched by the organization. The motive of the project was to lower cost-income ratio and increase customer service. The bank decided to follow ‘Activity Based Costing (ABC)’ methodology for the operating cost allocation exercise of the bank. To reduce the cost-income ratio the bank had to focus more on the fixed cost base and relate these costs to the products. RELEVANCE OF ‘ABC’ ANALYSIS In the case of Co-operative Bank the volume of customers is not as important as the number of transactions processed. Traditional costing is inappropriate in this case. The ABC costing was the right tool for the analysis of the existing situation of the Bank because of two reasons: 1. The business had a large variety of products and services. So the traditional costing system shall not be a right tool for

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