Required: Your task is to assist Erik Larsen and his ABC team by providing the following information: 1) Under the original (old) cost system: A) Compute the single indirect cost allocation rate that the bank would use to allocate the total indirect costs presented in Exhibit B. A cont driver is a factor, nach as the number of ehecks processed, that casially affects conta. For exumple, the costs anscinted with the activity "paying checks" rise and fall as the quantity of the coat driver (the number of checks proceseed) rises and falle. 3. The bank earna net interest revenue by managing the "interest rate apread. This spread is the difference between the interest rate the bank eame oo custotber deponits (say 8 peronot, less the internat rate the bank pays the cuatomer on the average checking aceount halance iay 4 percent i. 386 Issues in Accounting Education B) Use your answer to part A to determine the total annual indirect cost assigned to: (i) the retail customer line, and (ii) the business customer line. What drives these allocations? C) What proportion of the total indirect cost is assigned to: (i) the retail customer line, and (ii) the business customer line? Why? That is, what. is the underlying rationale for indirect cost allocation under the old system? What assumption must hold approximately true for the original cost allocation procedure to generate "accurate" customer cost information? D) Use your answer to part B and data on the number of retail and business accounts to determine: (i) the indirect cost per retail account, and (ii) the indirect cost per business aceount. E) Assuming there are no direct costs or other indirect costs, compute the average contribution to profit per account for retail customers and for business customers. What business strategy would a manager using the original cost allocation system likely adopt? Why