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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 6.70 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 $3,750,00 5,000,000 uses

Visiting branch Number of visits 2,250,000 375,000 visits

Processing transaction Number of transactions 16,500,000 200,000,000 transactions

Managing functions Total deposits 15,000,000 $937,500,000in deposits

Total overhead $37,500,000

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 (= $37,500,000/$937,500,000) 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.

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