Problem 5-57 Customers as a Cost Object Morrisom National Bank has requested an analysis of checking account profitability by custom- er 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 catego- ries and their associated annual costs are as follows: Opening and closing accounts av Issuing monthly statements Processing transactions Customer inquiries 000 Providing automatic teller machine (ATM) services Total cost $ 300,000 450,000 3,075,000 600,000 1,680,000 $6,105,000 Additional data concerning the usage of the activities by the various customers are also provided: plished at busunog Account Balance Low High Medium 4,500 150,000 3,000,000 Number of accounts opened/closed Number of statements issued Processing transactions Number of telephone minutes Number of ATM transactions Number of checking accounts 22,500 675,000 27,000,000 1,500,000 2,025,000 57,000 COCO 3,000 75,000 750,000 600,000 75,000 6,000 900,000 300,000 12,000 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 checking 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, respectively. Calculate the average profit per account (average revenue minus average cost from Requirement 1). Then calculate the profit per account by using the revenue per customer type and the unit cost per customer type calculated in Requirement 2. 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 checking fee were imposed. Explain how you could verify the president's argument by using ABC