Customers as a Cost Object Morrisom 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 $300,000 Issuing monthly statements 450,000 Processing transactions 3,075,000 Customer inquiries 600,000 Providing automatic teller machine (ATM) services 1,680,000 Total cost $6,105,000 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 22,500 4,500 3,000 Number of statements issued 675,000 150,000 75,000 Processing transactions 27,000,000 3,000,000 750,000 Number of telephone minutes 1,500,000 900,000 600,000 Number of ATM transactions 2,025,000 300,000 75,000 Number of checking accounts 57,000 12,000 6,000 Required 1 Calculate a cost per account per year by dividing the total cost of processing and maintaining checking accounts by the total number of accounts Round your answer to the nearest cent $fill in the blank 1per account per year What is the average fee per month that the bank should charge to cover the costs incurred because of checking accounts Round your answer to the nearest cent $fill in the blank 2per month 2 Calculate a cost per account by customer category by using activity rates Round your answers to the nearest cent Cost Per Account Low $fill in the blank 3 Medium $fill in the blank 4 High $fill in the blank 5 3 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 minus average cost from Requirement 1) Round your answer to the nearest cent $fill in the blank 6per account Also calculate the profit per account by using the revenue per customer type and the unit cost per customer type calculated in Requirement 2 Round to the nearest cent Use the minus sign to indicate a loss Low balance customers $fill in the blank 7per account Medium balance customers $fill in the blank 8per account High balance customers $fill in the blank 9per account 4 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 of the customers would switch banks if a checking fee were imposed Explain how you could verify the presidents argument by using ABC First, calculate the profits from loans, credit cards, and other products by customer category (using ABC data) Next, compare 50 of the cross sales profits from low balance customers with the total loss from the low balance checking accounts If the cross sales profits are than the loss, the presidents argument has merit Customers as a Cost Object Morrisom National Bank has rested an analysis of checking contratty by comart Customers are cord ording to the hair colombiance with the three different customer categories and their medidas e as fotos Opening and doing counts 1 300 000 Iming monthly Matments 450,000 Processing transactions 1,075,000 Customer inquiries 600,000 Providing automatic taler machine CATH) 1,600,000 16 105,000 Additional stata concerning the map of the activities by the various cutonen we provided Account Malone Low High Number of account spend 22 500 4 500 3,000 675 000 150 000 Processing transactions 27,000,000,000,000 15 000 1 100 000 100 000 100 000 Number of ATH reactions 2 083 000 75 000 500 000 kumber of the accounts 57,000 12 000 6 000 required per account per year What is the per month that the banks to cover the coloured became of checking Round your swer to the 2 Calculate a cost per account by customer category by way and were to the 2 Calculate of account by customer category by way on your newers to the rest Cost Per Account Low Medium High 3 Currently, the bank offers tree thing to wors There we we, the rest var under Kuchy Calculate the average rates were from 11 ore per Also calculate the protect by wing the recome and the unto per correlated into the Low balance customers Hellucci per account High balance customers 4 Anar le ministrended in the true chacun fature for low balance customers The band expect to the for the through crossed tvey that that of the cuts withing you the ANC Fint at the from brand other some truth Opening and closing accounts $300,000 Issuing monthly statements 450,000 Processing transactions 3,075,000 Customer inquiries 600,000 Providing automatic teller machine (ATM) services 1,680,000 Total cost $6,105,000 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 22,500 4,500 3,000 Number of statements issued 675,000 150,000 75,000 Processing transactions 27,000,000 3,000,000 750,000 Number of telephone minutes 1,500,000 900,000 600,000 Number of ATM transactions 2,025,000 300,000 75,000 Number of checking accounts 57,000 12,000 6,000 1 Calculate a cost per account per year by dividing the total cost of processing and maintaining chacking accounts by the total number of accounts Round your answer to the nearest cont per account per year What is the average fee per month that the bank should charge to cover the costs incurred because of checking accounts Round your answer to the nearest cant per month 7 Calculate a cost per account by customer Category by using activity rates Round your answers to the nearest cant Cost Per Account LOV Medium High 3 Currently, the bank offers free checking to all of its customers The interes from Requirement 1) Round your answer to the nearest cent per account Also calculate the profit per account by using the revenue per customer type a Low balance customers per account Medium balance customers per account $ $ High balance customers per account of its customers The interest ravens average 590 however, there are not 100 Seart cent over stop and the hit cost percer type calculated in Hurement Round to the store

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Customers as a Cost Object Morrisom National Bank has requested an analysis of checking account profitability by customer type. Customers are categorized according to the

Customers as a Cost Object

Morrisom 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	$300,000
Issuing monthly statements	450,000
Processing transactions	3,075,000
Customer inquiries	600,000
Providing automatic teller machine (ATM) services	1,680,000
Total cost	$6,105,000

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	22,500	4,500	3,000
Number of statements issued	675,000	150,000	75,000
Processing transactions	27,000,000	3,000,000	750,000
Number of telephone minutes	1,500,000	900,000	600,000
Number of ATM transactions	2,025,000	300,000	75,000
Number of checking accounts	57,000	12,000	6,000

Required:

1. Calculate a cost per account per year by dividing the total cost of processing and maintaining checking accounts by the total number of accounts. Round your answer to the nearest cent. $fill in the blank 1per account per year

What is the average fee per month that the bank should charge to cover the costs incurred because of checking accounts? Round your answer to the nearest cent. $fill in the blank 2per month

2. Calculate a cost per account by customer category by using activity rates. Round your answers to the nearest cent.

	Cost Per Account
Low	$fill in the blank 3
Medium	$fill in the blank 4
High	$fill in the blank 5

3. 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 minus average cost from Requirement 1). Round your answer to the nearest cent. $fill in the blank 6per account

Also calculate the profit per account by using the revenue per customer type and the unit cost per customer type calculated in Requirement 2. Round to the nearest cent. Use the minus sign to indicate a loss.

Low-balance customers	$fill in the blank 7per account
Medium-balance customers	$fill in the blank 8per account
High-balance customers	$fill in the blank 9per account

4. 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% of the customers would switch banks if a checking fee were imposed. Explain how you could verify the presidents argument by using ABC.

First, calculate the profits from loans, credit cards, and other products by customer category (using ABC data). Next, compare 50% of the cross-sales profits from low-balance customers with the total loss from the low-balance checking accounts. If the cross-sales profits are than the loss, the presidents argument has merit. image text in transcribed

image text in transcribed

Customers as a Cost Object Morrisom National Bank has rested an analysis of checking contratty by comart Customers are cord ording to the hair colombiance with the three different customer categories and their medidas e as fotos Opening and doing counts 1.300.000 Iming monthly Matments 450,000 Processing transactions 1,075,000 Customer inquiries 600,000 Providing automatic taler machine CATH) 1,600,000 16.105,000 Additional stata concerning the map of the activities by the various cutonen we provided Account Malone Low High Number of account spend 22.500 4.500 3,000 675.000 150.000 Processing transactions 27,000,000,000,000 15.000 1.100.000 100.000 100.000 Number of ATH reactions 2.083.000 75.000 500.000 kumber of the accounts 57,000 12.000 6.000 required per account per year What is the per month that the banks to cover the coloured became of checking Round your swer to the 2. Calculate a cost per account by customer category by way and were to the 2. Calculate of account by customer category by way on your newers to the rest Cost Per Account Low Medium High 3. Currently, the bank offers tree thing to wors. There we we, the rest var under Kuchy Calculate the average rates were from 11 ore per Also calculate the protect by wing the recome and the unto per correlated into the Low-balance customers Hellucci per account High-balance customers 4. Anar le ministrended in the true chacun fature for low balance customers. The band expect to the for the through crossed tvey that that of the cuts withing you the ANC Fint at the from brand other some truth Opening and closing accounts $300,000 Issuing monthly statements 450,000 Processing transactions 3,075,000 Customer inquiries 600,000 Providing automatic teller machine (ATM) services 1,680,000 Total cost $6,105,000 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 22,500 4,500 3,000 Number of statements issued 675,000 150,000 75,000 Processing transactions 27,000,000 3,000,000 750,000 Number of telephone minutes 1,500,000 900,000 600,000 Number of ATM transactions 2,025,000 300,000 75,000 Number of checking accounts 57,000 12,000 6,000 1. Calculate a cost per account per year by dividing the total cost of processing and maintaining chacking accounts by the total number of accounts. Round your answer to the nearest cont per account per year What is the average fee per month that the bank should charge to cover the costs incurred because of checking accounts? Round your answer to the nearest cant per month 7. Calculate a cost per account by customer Category by using activity rates. Round your answers to the nearest cant Cost Per Account LOV Medium High 3. Currently, the bank offers free checking to all of its customers. The interes from Requirement 1). Round your answer to the nearest cent. per account Also calculate the profit per account by using the revenue per customer type a Low-balance customers per account Medium-balance customers per account $ $ High-balance customers per account of its customers. The interest ravens average 590 however, there are not 100 Seart cent over stop and the hit cost percer type calculated in Hurement Round to the store