Exercise 10-30 Activity-Based Costing of Customers (LO 10-3, 4)

Rock Solid Bank and Trust (RSB&T) offers only checking accounts. Customers can write checks and use a network of automated teller machines. RSB&T earns revenue by investing the money deposited; currently, it averages 6.20 percent annually on its investments of those deposits. To compete with larger banks, RSB&T pays depositors 0.50 percent on all deposits. A recent study classified the banks annual operating costs into four activities:

Activity	Cost Driver		Cost	Driver Volume
Using ATM	Number of uses	$	1,610,000		2,300,000	uses
Visiting branch	Number of visits		1,071,000		153,000	visits
Processing transaction	Number of transactions		6,889,000		83,000,000	transactions
Managing functions	Total deposits		5,460,000	$	390,000,000	in deposits
Total overhead		$	15,030,000

Data on two representative customers follow:

	Customer A			Customer B
ATM uses		220			270
Branch visits		5			22
Number of transactions		100			1,600
Average deposit	$	6,300		$	6,300

Required:

a. Compute RSB&T's operating profits.

operating profit

7,200,000

b. Compute the profit from Customer A and Customer B, assuming that customer costs are based only on deposits. Interest costs = 0.50 percent of deposits; operating costs are 5 percent of deposits. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Profit Per customer
Customer A
Customer B

c. Compute the profit from Customer A and Customer B, assuming that customer costs are computed using the information in the activity-based costing analysis. (Do not round intermediate calculations. Round your answers to 2 decimal places.Loss amounts should be indicated by a minus sign.)

	customer A	Customer B
Sales Revenue
Interest on deposit
total operating cost
customer profit/loss