Exercise 10-32 (Algo) 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 7.00 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	$	4,200,000		5,600,000	uses
Visiting branch	Number of visits		2,520,000		420,000	visits
Processing transaction	Number of transactions		18,480,000		224,000,000	transactions
Managing functions	Total deposits		16,800,000	$	1,050,000,000	in deposits
Total overhead		$	42,000,000

Data on two representative customers follow.

	Customer A			Customer B
ATM uses		100			200
Branch visits		5			20
Number of transactions		40			1,500
Average deposit	$	6,000		$	6,000

Required:

a. Compute RSB&T's operating profits.

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 4 percent (= $42,000,000/$1,050,000,000) of deposits.

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.