Morrisom National Bank has requested an analysis of checking account profitabili

Question

Morrisom National Bank has requested an analysis of checking account profitability by customer type. Customers are categorized according to the size of their account: low balances, medium balances, and high balances. The activities associated with the three different customer categories and their associated annual costs are as follows:

Additional data concerning the usage of the activities by the various customers are also provided:

Required:

1. Calculate a cost per account per year by dividing the total cost of processing and maintaining checking accounts by the total number of accounts. Round your answer to the nearest cent.
$ per account per year

What is the average fee per month that the bank should charge to cover the costs incurred because of checking accounts? Round your answer to the nearest cent.
$ per month

Opening and closing accounts $300,000 Issuing monthly statements 450,000 Processing transactions 3,075,000 Customer inquiries 600,000 Providing automatic teller machine (ATM) services 1,680,000 Total cost $6,105,000

Explanation / Answer

SOLUTION

Cost per account per year = Total cost of processing and maintaining the checking accounts / Number of accounts

= $6,105,000 / (57,000 + 12,000 + 6,000)

= $6,105,000 / 75,000

= $81.40 per account per year

Average fee per month = $81.40 / 12 months = $6.78 per account

The average fees bank should charge is $6.78 per month per account.

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