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 6.30 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 Using ATM Visiting branch Processing transaction. Managing functions Total overhead Cost Driver ATM uses Branch visits Number of transactions Average deposit Number of uses Number of visits Number of transactions Total deposits Data on two representative customers follow. Customer A Customer B 100 200 5 20 40 $6,000 1,500 $6,000 Cost Driver Volume 4,200,000 uses $ 3,150,000 1,890,000 315,000 visits 13,860,000 168,000,000 transactions 12,600,000 $787,500,000 in deposits $31,500,000 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 (= $31,500,000/$787,500,000) 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.
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 6.30 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 Using ATM Visiting branch Processing transaction. Managing functions Total overhead Cost Driver ATM uses Branch visits Number of transactions Average deposit Number of uses Number of visits Number of transactions Total deposits Data on two representative customers follow. Customer A Customer B 100 200 5 20 40 $6,000 1,500 $6,000 Cost Driver Volume 4,200,000 uses $ 3,150,000 1,890,000 315,000 visits 13,860,000 168,000,000 transactions 12,600,000 $787,500,000 in deposits $31,500,000 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 (= $31,500,000/$787,500,000) 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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 6.30 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
Using ATM
Visiting branch
Processing transaction
Managing functions
Total overhead
Cost Driver
ATM uses
Branch visits
Number of transactions
Average deposit
Number of uses
Number of visits
Number of transactions
Total deposits
Data on two representative customers follow.
Customer A Customer B
100
200
5
20
40
$6,000
1,500
$6,000
Driver Volume
4,200,000 uses
315,000 visits
Cost
$ 3,150,000
1,890,000
13,860,000 168,000,000 transactions
12,600,000 $787,500,000 in deposits
$31,500,000
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 (= $31,500,000/$787,500,000) 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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