First Federal Bank’s start-up division establishes new branch banks. Each branch opens with three tellers. Total teller cost per branch is $90,000 per year. The three tellers combined can process up to 70,000 customer transactions per year. If a branch does not attain a volume of at least 40,000 transactions during its first year of operations, it is closed. If the demand for services exceeds 70,000 transactions, an additional teller is hired, and the branch is transferred from the start-up division to regular operations.

Required

a. What is the relevant range of activity for new branch banks?

b. Determine the amount of teller cost in total and the teller cost per transaction for a branch that processes 40,000, 50,000, 60,000, or 70,000 transactions. In this case (the activity base is the number of transactions for a specific branch), is the teller cost a fixed or a variable cost?

c. Determine the amount of teller cost in total and the teller cost per branch for First Federal Bank, assuming that the start-up division operates 15, 20, 25, or 30 branches. In this case (the activity base is the number of branches), is the teller cost a fixed or a variable cost?