Blank 1 options: do not use / use

Blank 2 options: Hartley and Farrel / Hartley and Wheeler / Wheeler and Farrel

Blank 3 options: Farrel / Hartley / Wheeler

Blank 4 options: does not need to worry about cross-subsidization / should be very concerned about cost hierarchies / should be very concerned about cross-subsidization

Blank 5 options: is / is not

Blank 6 options: increase / reduce

This is all the info.

United Savers Bank (USB) is examining the profitability of its Premier Account, a combined savings and checking account. (Click the icon to view account information.) USB recently conducted an activity-based costing study of its services. It assessed the following costs for six individual services. The use of these services in 2017 by three customers is as follows: E (Click the icon to view the costs for the services and customer information.) Assume Hartley and Farrel always maintain a balance above $1,000, whereas Wheeler always has a balance below $1,000. Read the requirements. Requirement 1. Compute the 2017 profitability of the Hartley, Wheeler, and Farrel Premier Accounts at USB. (For amounts with a $0 balance, make sure to enter "0" in the appropriate cell. Round your answers to the nearest cent. Use parentheses or a minus sign for operating losses.) Hartley Wheeler Farrel Total Revenues Spread revenues on annual basis $ 36.75 $ 25.50 $ 759.00 $ 821.25 0.00 240.00 0.00 240.00 Monthly fee charges Total revenues 36.75 265.50 759.00 1,061.25 Costs 105.30 129.60 10.80 245.70 Deposit/withdrawal with teller Deposit/withdrawal with ATM 8.40 15.40 11.20 35.00 Deposit/withdrawal on prearranged basis 0.00 7.00 31.50 38.50 Bank checks written 67.20 25.20 8.40 100.80 Foreign currency drafts 74.40 24.80 86.80 186.00 17.60 25.60 9.60 52.80 Inquiries 272.90 227.60 158.30 658.80 Total costs $ (236.15) $ 37.90 $ 600.70 $ 402.45 Operating income (loss) Depositors receive a 2% annual interest rate on their average deposit. USB earns an interest rate spread of 3% (the difference between the rate at which it lends money and the rate it pays depositors) by lending money for home-loan purposes at 5%. Thus, USB would gain $60 on the interest spread if a depositor had an average Premier Account balance of $2,000 in 2017 ($2,000 x 3% = $60). The Premier Account allows depositors unlimited use of services such as deposits, withdrawals, checking accounts, and foreign currency drafts. Depositors with Premier Account balances of $1,000 or more receive unlimited free use of services. Depositors with minimum balances of less than $1,000 pay a $20-a-month service fee for their Premier Account. Account Usage Activity-Based Cost per "Transaction" Hartley Wheeler Farrel 2.70 39 48 4 0.70 12 22 16 Deposit/withdrawal with teller Deposit/withdrawal with automatic teller machine (ATM) Deposit/withdrawal on prearranged monthly basis Bank checks written Foreign currency drafts 0.50 0 14 63 8.40 8 3 1 12.40 6 2 7 Inquiries about account balance 1.60 11 16 6 Average Premier Account balance for 2017 $ 1,225 $ 850 $ 25,300 Requirement 2. Why might USB worry about the profitability of individual customers if the Premier Account product offering is profitable as a whole? Cross-subsidization across individual Premier Accounts occur when profits made on some accounts are offset by losses on other accounts The Farrel account is highly profitable, while the Hartley account is sizably unprofitable. The Wheeler account shows a small profit but only because of the monthly fees. It is unlikely that Wheeler will keep paying these high fees and that USB would want them to pay such high fees from a customer relationship standpoint. The facts also suggest that the customers the bank services uniformly. For example, have a lot of transactions with the teller or ATM, and also inquire about their account balances more often than USB Competition likely would "understand" that high-balance low-activity type accounts are highly profitable. Offering free services to these customers likely to retain these accounts if other banks offer higher interest rates. Competition likely will the interest rate spread USB can earn on the high-balance low-activity accounts they are able to retain