Rock Solid Bank and Trust (RSB&T) offers only checking accounts. Customers can write checks and use a network of automated teller machines. RSB&T earns revenue by investing the money deposited; currently, it averages 7.20 percent annually on its investments of those deposits. To compete with larger banks, RSB&T pays depositors 0.50 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 $ 4,500,000 6,000,000 uses Visiting branch Number of visits 2,700,000 450,000 visits Processing transaction Number of transactions 19,800,000 240,000,000 transactions Managing functions Total deposits 18,000,000 $
Rock Solid Bank and Trust (RSB&T) offers only checking accounts. Customers can write checks and use a network of automated teller machines. RSB&T earns revenue by investing the money deposited; currently, it averages 7.20 percent annually on its investments of those deposits. To compete with larger banks, RSB&T pays depositors 0.50 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 | $ | 4,500,000 | 6,000,000 | uses | |
| Visiting branch | Number of visits | 2,700,000 | 450,000 | visits | ||
| Processing transaction | Number of transactions | 19,800,000 | 240,000,000 | transactions | ||
| Managing functions | Total deposits | 18,000,000 | $ | 1,125,000,000 | in deposits | |
| Total |
$ | 45,000,000 | ||||
Data on two representative customers follow.
| Customer A | Customer B | |||||
| ATM uses | 100 | 200 | ||||
| Branch visits | 5 | 20 | ||||
| Number of transactions | 40 | 1,500 | ||||
| Average deposit | $ | 6,000 | $ | 6,000 | ||
Required:
a. Compute RSB&T's operating profits.
b. Compute the profit from Customer A and Customer B, assuming that customer costs are based only on deposits. Interest costs = 0.50 percent of deposits; operating costs are 4 percent (= $45,000,000/$1,125,000,000) of deposits.
c. Compute the profit from Customer A and Customer B, assuming that customer costs are computed using the information in the activity-based costing analysis.
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