Requirements :
United Savings Bank (USB) is examining the profitability of its Premier Account, a combined savings and checking account. Click the icon to view account information.) USB recently conducted an activity-based costing study of its services. It assessed the following costs for six individual services. The use of these services in 2017 by three customers is as follows: (Click the icon to view the costs for the services and customer information.) Assume Lindell and Colston always maintain a balance above $1,000, whereas Welker always has a balance below $1,000. Read the requirements. Requirement 1. Compute the 2017 profitability of the Lindell, Welker, and Colston Premier Accounts at USB. (For amounts with a $0 balance, make sure to enter "0" in the appropriate cell. Round your answers to the nearest cent. Use parentheses or a minus sign for operating losses.) Lindell Welker Colston Total Revenues Spread revenues on annual basis $ 36.00 $ 21.00 $ 264.00 747.00 $ 0.00 804.00 264.00 0.00 Monthly fee charges Total revenues 36.00 285.00 747.00 1,068.00 Costs 110.00 122.50 10.00 242.50 9.60 19.20 10.40 39.20 0.00 7.00 29.00 36.00 Deposit/withdrawal with teller Deposit/withdrawal with ATM Deposit/withdrawal on prearranged basis Bank checks written Foreign currency drafts Inquiries 65.60 16.40 106.60 12.10 24.60 60.50 10.20 72.60 11.90 145.20 27.20 49.30 269.70 204.40 144.70 618.80 Total costs $ (233.70)'$ 80.60 $ 602.30 $ 449.20 Operating income (loss) Requirement 2. Why might USB worry about the profitability of individual customers if the Premier Account product offering is profitable as a whole? across individual Premier Accounts occur when profits made on some accounts are The account is highly profitable, while the account is sizably unprofitable. The account shows a small profit but only because of the It is unlikely that will keep paying these high fees and that USB would want them to pay such high fees from a customer relationship standpoint Depositors receive a 2% annual interest rate on their average deposit. USB earns an interest rate spread of 3% (the difference between the rate at which it lends money and the rate it pays depositors) by lending money for home-loan purposes at 5%. Thus, USB would gain $60 on the interest spread if a depositor had an average Premier Account balance of $2,000 in 2017 ($2,000 x 3% = $60). The Premier Account allows depositors unlimited use of services such as deposits, withdrawals, checking accounts, and foreign currency drafts. Depositors with Premier Account balances of $1,000 or more receive unlimited free use of services. Depositors with minimum balances of less than $1,000 pay a $22-a-month service fee for their Premier Account. 1. Compute the 2017 profitability of the Lindell, Welker, and Colston Premier Accounts at USB. 2. Why might USB worry about the profitability of individual customers if the Premier Account product offering is profitable as a whole? 3. What changes would you recommend for USB's Premier Account? 1 Data Table Account Usage Activity-Based Cost per "Transaction" $ 2.50 0.80 0.50 Lindell Welker Colston 44 49 4 12 24 13 0 14 58 Deposit/withdrawal with teller Deposit/withdrawal with automatic teller machine (ATM) Deposit/withdrawal on prearranged monthly basis Bank checks written Foreign currency drafts Inquiries about account balance Average Premier Account balance for 2017 8 2 3 8.20 12.10 6 1 5 1.70 7 16 6 $ 1,200 $ 700 $ 24,900
