Rock Solid Bank and Trust (RSB&T) offers only checking accounts. Customers can w

Question

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 5.2 percent annually on its investments of those deposits. To compete with larger banks, RSB&T pays depositors 0.5 percent on all deposits. A recent study classified the bank’s annual operating costs into four activities:

Data on two representative customers follow:

Required:

a. Compute RSB&T's operating profits.

Operating profit = $

b. Compute the profit from Customer A and Customer B, assuming that customer costs are based only on deposits. Interest costs = 0.5 percent of deposits; operating costs are 4 percent 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. (Do not round intermediate calculations. Round your answers to 2 decimal places. Loss amounts should be indicated by a minus sign.)

Activity Cost Driver Cost Driver Volume Using ATM Number of uses $ 1,500,000 2,000,000 uses Visiting branch Number of visits 900,000 150,000 visits Processing transaction Number of transactions 6,600,000 80,000,000 transactions Managing functions Total deposits 6,000,000 $ 375,000,000 in deposits Total overhead $ 15,000,000

Explanation / Answer

[A] Computation of Operating Profits:- Revenue            19,500,000 Interest to Depositors            (1,875,000) Overheads         (15,000,000) Total operating Profit              2,625,000 [B] Costs are based only on Deposits Particulars A B Revenue 312 312 Interest Cost -30 -30 Operating Cost -240 -240 Profits 42 42 [C] As per Activity based costing Particulars A B Revenue 312 312 Interest Cost -30 -30 ATM Uses -75 -150 Branch Visit -30 -120 Processing Transaction -3.3 -123.75 Managing Function -96 -96 Profits/Loss 77.7 -207.75

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