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(LO 10-3, 4) 10-32. Activity-Based Costing of Customers Rock Solid Bank and Trust (RSB&T) offers only checking accounts. Customers can write checks and use a
(LO 10-3, 4) 10-32. Activity-Based Costing of Customers 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 5.2 percent annually on its investments of those deposits. To com- pete with larger banks, RSB&T pays depositors 0.5 percent on all deposits. A recent study classi- fied the bank's annual operating costs into four activities. ES Activity Cost Driver Cost Driver Volume Using ATM Number of uses $ 1,500,000 2,000,000 uses Visiting branch...... Number of visits 900.000 150,000 visits Processing transaction Number of transactions 6,600,000 80,000,000 transactions Managing functions .. Total deposits 6,000,000 $375,000,000 in deposits Total overhead..... $15.000.000 Data on two representative customers follow. Customer A Customer B ATM uses Branch visits.. Number of transactions. Average deposit. 100 5 40 $6,000 200 20 1,500 $6,000 a. Required 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 = 0.5 percent of deposits; operating costs are 4 percent (= $15,000,000/$375,000,000) of deposits. c. Compute the profit from Customer A and Customer B, assuming that customer costs are com- puted using the information in the activity-based costing analysis
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