Question

Rock Solid Bank and Trust (RSB&T) offers only checking accounts. Customers can write checks and use a network of automated teller machines. RSB&T earns revenue by investing the money deposited; currently, it averages 6.10 percent annually on its investments of those deposits. To compete with larger banks, RSB&T pays depositors 0.50 percent on all deposits. A recent study classified the bank’s annual operating costs into four activities.

Activity	Cost Driver		Cost	Driver Volume
Using ATM	Number of uses	$	2,850,000		3,800,000	uses
Visiting branch	Number of visits		1,710,000		285,000	visits
Processing transaction	Number of transactions		12,540,000		152,000,000	transactions
Managing functions	Total deposits		11,400,000	$	712,500,000	in deposits
Total overhead		$	28,500,000

Data on two representative customers follow.

	Customer A			Customer B
ATM uses		100			200
Branch visits		5			20
Number of transactions		40			1,500
Average deposit	$	6,000		$	6,000

Required:

a. Compute RSB&T's operating profits.

b. Compute the profit from Customer A and Customer B, assuming that customer costs are based only on deposits. Interest costs = 0.50 percent of deposits; operating costs are 4 percent (= $28,500,000/$712,500,000) of deposits.

c. Compute the profit from Customer A and Customer B, assuming that customer costs are computed using the information in the activity-based costing analysis.

Required A

Operating profit ??

Required B

Profit per customer

Customer A ??

Customer B ??

Required C

Customer A Customer B

Sales revenue ?? ??

Interest on deposit ?? ??

Total operating cost ?? ??

Customer profit / loss

Answer 1