Morrisom national bank has requested an analysis of checking account probability by customer typ

Chapter 5 Activity-Based Costing and Management Problem' 5-57 Customers as a Cost Object Morriom National Bank has requested an analyils of checking account profit ance, mediunm er type. Customers are categorized according to the size of their account. balances, and high balances. The activities associated with the three different ries and their associated annual costs are as follows: customer catego- Opening and closing accounts issuing monthly statement 300,000 450,000 Processing transactions Customer inquiries Providing automatic teller machine (ATM) services Total cost 600,000 680,000 6,105,000 Additional provided: data concerning the usage of the activities by the various customers are Account Balance Number of accounts opened/closed Number of statements issued Processing transactions Number of telephone minutes Number of ATM transactions Number of checking account 22,500 675,000 27,000,000 1,500,000 2025,000 57,000 4,500 150,000 3,000 75,000 750,000 75,000 12,000 6000 Required: (Note: Round answers to two decimal places) 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. What is the average fee per month that the bank should charge to cover the costs incurred because of checkin accounts? 2. Calculate a cost per account by customer category by using activity rates 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, respectivel Calculate the average profit per account (average revenue minus average cost from Requirement 1). Then calculate the profit per account by using the type and the unit cost per customer type calculated in Requirement 2. revenue per customer 4. CONCEPTUAL CONNECTION 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 verify the president's argument by using ABC. checking fee were imposed. Explain how you could