Northwestern Bank (NB) offers only checking accounts. Customers can write checks and use a network of automated teller machines. NB earns revenue by investing the money deposited; currently, it averages 4.1 percent annually on its investments of those deposits. To compete with larger banks, NB pays depositors 0.3 percent on all deposits. A recent study classified the bank's annual operating costs into four activities. Activity Using ATM Visiting branch Processing transactions Managing functions Total overhead ATM uses Branch visits Number of transactions Average deposit Cost Driver Data on two representative customers follow: Required: Number of uses Number of visits Number of transactions Total deposits Emily 40 5 200 $ 10,000 Jacob 130 45 520 $ 10,000 Cost $ 1,843, 200 1,339, 200 8,110,080 7,238,400 $ 18,530,880 Driver Volume 3,072,000 uses 279,000 visits 122,880,000 transactions $ 579,090,000 in deposits a. Compute the operating profit for Northwestern Bank. b. Compute the profit from Emily and Jacob, assuming that customer costs are based only on deposits. Interest costs = 0.3 percent of deposits; operating costs are 3.2 percent (= $18,530,880/$579,090,000) of deposits. c. Compute the profit from Emily and Jacob, assuming that customer costs are computed using the information in the activity-based costing analysis.
Northwestern Bank (NB) offers only checking accounts. Customers can write checks and use a network of automated teller machines. NB earns revenue by investing the money deposited; currently, it averages 4.1 percent annually on its investments of those deposits. To compete with larger banks, NB pays depositors 0.3 percent on all deposits. A recent study classified the bank's annual operating costs into four activities. Activity Using ATM Visiting branch Processing transactions Managing functions Total overhead ATM uses Branch visits Number of transactions Average deposit Cost Driver Data on two representative customers follow: Required: Number of uses Number of visits Number of transactions Total deposits Emily 40 5 200 $ 10,000 Jacob 130 45 520 $ 10,000 Cost $ 1,843, 200 1,339, 200 8,110,080 7,238,400 $ 18,530,880 Driver Volume 3,072,000 uses 279,000 visits 122,880,000 transactions $ 579,090,000 in deposits a. Compute the operating profit for Northwestern Bank. b. Compute the profit from Emily and Jacob, assuming that customer costs are based only on deposits. Interest costs = 0.3 percent of deposits; operating costs are 3.2 percent (= $18,530,880/$579,090,000) of deposits. c. Compute the profit from Emily and Jacob, assuming that customer costs are computed using the information in the activity-based costing analysis.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Northwestern Bank (NB) offers only checking accounts. Customers can write checks and use a network of automated teller machines.
NB earns revenue by investing the money deposited; currently, it averages 4.1 percent annually on its investments of those deposits.
To compete with larger banks, NB pays depositors 0.3 percent on all deposits. A recent study classified the bank's annual operating
costs into four activities.
Activity
Using ATM
Visiting branch
Processing transactions
Managing functions
Total overhead
ATM uses
Branch visits
Number of transactions
Average deposit
Cost Driver
Data on two representative customers follow:
Required:
Number of uses
Number of visits
Number of transactions
Total deposits
Emily
40
5
200
$ 10,000
Jacob
130
45
520
$ 10,000
Cost
$ 1,843, 200
1,339, 200
8,110,080
7,238,400
$ 18,530,880
Driver Volume
3,072,000 uses
279,000 visits
122,880,000 transactions
$ 579,090,000 in deposits
a. Compute the operating profit for Northwestern Bank.
b. Compute the profit from Emily and Jacob, assuming that customer costs are based only on deposits. Interest costs = 0.3 percent of
deposits; operating costs are 3.2 percent (= $18,530,880/$579,090,000) of deposits.
c. Compute the profit from Emily and Jacob, assuming that customer costs are computed using the information in the activity-based
costing analysis.
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