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. 2 A cost driver is a factor, such as the number of checks processed, that causally affects costs. For example, the costs associated with the activity "paying checks" rise and fall as the quantity of the cost driver (the number of checks processed) rises and falls. 3 The bank earns net interest revenue by managing the "interest rate spread." This spread is the difference between the interest rate the bank earns on customer deposits (say 8 percent), less the interest rate the bank pays the customer on the average checking account balance (say 4 percent). EXHIBIT C Activity Cost Drivers by Customer Line 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 account. 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