Question 2 Swazi Bank is a bank that offers a variety of banking services to its customers. One of the services offered is aimed at high network net worth individuals and the bank is currently reviewing the performance of its customer base. The high-net-worth individuals are classified into four groups based on the value of the individual liquid assets deposited in Swazi bank the following annual budget is information has been prepared Group Gold Silver Bronze Nickel Individual value (000s) R6,000 - R9,999 R3,000 - R5,999 R1,000-R2,999 R500-R999 Number of customers 1,800 2,000 1,500 (R000) (R000) (R000) (R000) Contribution 2,500 1,400 900 500 Overheads: Share of support costs 1,165 790 760 285 Share of facility costs 500 240 160 100 Profit/Loss 835 370 (20) 115 1,000 Swazi Bank is about to implement an activity-based costing system. The implementation team recently completed an analysis of the support costs. The analysis revealed that these costs were variable in relation to certain drivers the details of the analysis or shown below: Silver Gold (000) Bronze (000) Nickel (000) (000) Group Activity Number of telephone inquiries Number of statements prepared Number of customer meetings 150 300 480 200 220 240 110 200 120 120 100 60 Activity Support costs/overheads (R000) Telephone enquiries Statements Customer meetings 1,000 250 1,750 The bank manager feels that the two low profitability/loss making groups need to be investigated further and that consideration should be given to discontinuing these two groups and concentrating the marketing and sales effort on increasing the number of customers within the remaining two groups. He has outlined two proposals as follows: Proposal 1 Discontinue the two groups with the lowest/loss making contribution to concentrate on the two groups with the higher contribution so that the bank would have only two customer groups. If this option was implemented, it is expected that the facility costs would increase by 10% the marketing manager has calculated the probability of the number of customers the bank would serve to be as shown below Projected revised numbers of customers in groups Gold and Silver Group Gold Group Silver Customer numbers Probability Customer numbers Probability 2,000 2,200 0.2 0.5 2,250 2,500 2.750 0.3 0.4 2,500 0.3 0.3 Proposal 2 Discontinue either group bronze or nickel in order to concentrate on group gold and silver (so that the bank would have three customer groups). If this option were implemented, it is expected that the facility costs would increase by 8% If this proposal were implemented the marketing manager estimates that the increase in customer numbers in groups gold and silver would be reduced by 75% compared with proposal one. Required Part 1 a) Prepare a customer profitability statement of all four groups using ABC
