The ABC team estimated that for the three pilot-test bank branches, the retail and business customer lines experienced the annual activity levels(inthousands) as shown in Exhibit C. For example, Exhibit C reveals that retail customers had 160,000 teller transactions and made 95,000 account inquiry calls to the customer service call center.

ABC Bank currently services 150,000 retail customer checking accounts and 50,000 business customer checking accounts. The bank earns net interest revenue on the balances that customers keepintheirchecking accounts.3On average, the bank earns the following annual

revenue from each type of account:

Avg. annual revenue per retail customer account $10

Avg. annual revenue per business customer $40account

Required: Answer the following questions.

1. Compute the profit (loss) per customer for the retail customer and business customer first using original cost system then using the ABC System. For this purpose, use the cost data in Exhibit B. Show all your calculations in good form.

2. Based on the case, do you think the original cost system is "broken"? And if your answer is yes, explain why.

3. How can ABC data be used to develop marketing strategies that increase profits? How can the branch manager use ABC data to identify opportunities to trim cost while maintaining or increasing customer satisfaction?

4. Do you think bank's incentive bonus plan to increase the number of customers is wise? Explain your reasoning. What changes in the existing incentive plan, if any, would you recommend? Justify your answer.

Activity Cost Driver Checks processed Teller transactions Account inquiry calls to customer service call center EXHIBIT C Activity Cost Drivers by Customer Line Annual Number of Units of Activity-Cost Driver Used by Retail Customers (in 1,000s) 570 160 95 Annual Number of Units of Activity-Cost Driver Used by Business Customers (in 1,000s) 2,280 40 Total 2,850 200 5 100