xercise 10-32 (Algo) Activity-Based Costing of Customers (LO 10-3, 4) 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 5.50 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 $ 1,950,000 2,600,000 uses Visiting branch Number of visits 1,170,000 195,000 visits Processing transaction Number of transactions 8,580,000 104,000,000 transactions Managing functions Total deposits 7,800,000 $ 487,500,000 in deposits Total overhead $ 19,500,000 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 (= $19,500,000/$487,500,000) 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.
Exercise 10-32 (Algo) Activity-Based Costing of Customers (LO 10-3, 4)
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 5.50 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 | $ | 1,950,000 | 2,600,000 | uses | |
Visiting branch | Number of visits | 1,170,000 | 195,000 | visits | ||
Processing transaction | Number of transactions | 8,580,000 | 104,000,000 | transactions | ||
Managing functions | Total deposits | 7,800,000 | $ | 487,500,000 | in deposits | |
Total |
$ | 19,500,000 | ||||
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 (= $19,500,000/$487,500,000) 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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