Rock Solid Bank and Trust (RSB&T) offers only checkingaccounts. Customers can write checks and use a network of automatedteller machines. RSB&T earns revenue by investing the moneydeposited; currently, it averages 6.90 percent annually on itsinvestments of those deposits. To compete with larger banks,RSB&T pays depositors 0.50 percent on all deposits. A recentstudy classified the bank’s annual operating costs into fouractivities.
Activity | Cost Driver | | Cost | Driver Volume | | |
Using ATM | Number of uses | $ | 4,050,000 | | 5,400,000 | uses |
Visiting branch | Number of visits | | 2,430,000 | | 405,000 | visits |
Processing transaction | Number of transactions | | 17,820,000 | | 216,000,000 | transactions |
Managing functions | Total deposits | | 16,200,000 | $ | 1,012,500,000 | in deposits |
Total overhead | | $ | 40,500,000 | | | |
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, assumingthat customer costs are based only on deposits. Interest costs =0.50 percent of deposits; operating costs are 4 percent (=$40,500,000/$1,012,500,000) of deposits.
c. Compute the profit from Customer A and Customer B, assumingthat customer costs are computed using the information in theactivity-based costing analysis.
