CUSTOMERS AS A COST OBJECT Oaklawn National Bank has requested an analysis of checking account profitability by customer type. Customers are categorized according to the size of their account: low balances, medium balances, and high balances. The activities associated with the three different customer categories and their associated annual costs are as follows:

Opening and closing accounts $ 200,000 Issuing monthly statements 300,000 Processing transactions 2,050,000 Customer inquiries 400,000 Providing automatic teller machine (ATM) services 1,120,000 Total cost $4,070,000 Additional data concerning the usage of the activities by the various customers are also provided:

Account Balance Low Medium High Number of accounts opened/closed 15,000 3,000 2,000 Number of statements issued 450,000 100,000 50,000 Processing transactions 18,000,000 2,000,000 500,000 Number of telephone minutes 1,000,000 600,000 400,000 Number of ATM transactions 1,350,000 200,000 50,000 Number of checking accounts 38,000 8,000 4,000 Required:
Round answers to two decimal places.
. Calculate a cost per account per year by dividing the total cost of processing and maintaining checking accounts by the total number of accounts. What is the average fee per month that the bank should charge to cover the costs incurred because of checking accounts?
. Calculate a cost per account by customer category by using activity rates.
. Currently, the bank offers free checking to all of its customers. The interest revenues average $90 per account; however, the interest revenues earned per account by category are $80, $100, and $165 for the low-, medium-, and high-balance accounts, respectively. Calculate the average profit per account (average revenue less average cost from Requirement 1). Then calculate the profit per account by using the revenue per customer type and the unit cost per customer type calculated in Requirement 2.
. After the analysis in Requirement 3, a vice president recommended eliminating the free checking feature for low-balance customers. The bank president expressed reluctance to do so, arguing that the low-balance customers more than made up for the loss through cross-sales. He presented a survey that showed that 50 percent of the customers would switch banks if a checking fee were imposed. Explain how you could verify the president’s argument by using ABC.
Problem