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.ActivityCost DriverCostDriver VolumeUsing ATMNumber of uses$ 1,929,6003,216,000usesVisiting branchNumber of visits1,857,600387,000visitsProcessing transactionsNumber of transactions8,490,240128,640,000transactionsManaging functionsTotal deposits7,315,200$ 612,270,000in depositsTotal overhead $ 19,592,640 Data on two representative customers follow: EmilyJacobATM uses40130Branch visits545Number of transactions200520Average deposit$ 10,000$ 10,000Required:Compute the operating profit for Northwestern Bank.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 (= $19,592,640/$612,270,000) of deposits.Compute the profit from Emily and Jacob, assuming that customer costs are computed using the information in the activity-based costing analysis.

Given in the question:Total Deposits = $612,270,000Interest earnings on deposits = 4.1%Interest to…

Answered: Compute the operating profit for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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	Cost Driver	Cost	Driver Volume
Using ATM	Number of uses	$ 1,929,600	3,216,000	uses
Visiting branch	Number of visits	1,857,600	387,000	visits
Processing transactions	Number of transactions	8,490,240	128,640,000	transactions
Managing functions	Total deposits	7,315,200	$ 612,270,000	in deposits
Total overhead		$ 19,592,640

Data on two representative customers follow:

	Emily	Jacob
ATM uses	40	130
Branch visits	5	45
Number of transactions	200	520
Average deposit	$ 10,000	$ 10,000

Required:

Compute the operating profit for Northwestern Bank.
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 (= $19,592,640/$612,270,000) of deposits.
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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