Northwestern Bank (NB) offers only checking accounts. Customers can write checks and use a network of automated teller machines. NB earns revenue by investing the money deposited; currently, it averages 4.1 percent annually on its investments of those deposits. To compete with larger banks, NB pays depositors 0.3 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 $ 1,893,600 3,156,000 uses Visiting branch Number of visits 1,641,600 342,000 visits Processing transactions Number of transactions 8,331,840 126,240,000 transactions Managing functions Total deposits 7,283,200 $ 598,445,000 in deposits Total overhead $ 19,150,240 Data on two representative customers follow: Emily Jacob ATM uses 40 130 Branch visits 5 45 Number of transactions 200 520 Average deposit $ 10,000 $ 10,000 Required: Compute the operating profit for Northwestern Bank. Compute the profit from Emily and Jacob, assuming that customer costs are based only on deposits. Interest costs = 0.3 percent of deposits; operating costs are 3.2 percent (= $19,150,240/$598,445,000) of deposits. Compute the profit from Emily and Jacob, assuming that customer costs are computed using the information in the activity-based costing analysis. Compute the operating profit for Northwestern Bank. Operating profit profit per customer emily jacob Required C Compute the profit from Emily and Jacob, assuming that customer costs are computed using the information in the activity-based costing analysis. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Loss amounts should be indicated by a minus sign. Show less Emily Jacob Sales revenue Interest on deposit Total operating cost Customer profit or (loss)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 33P

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Activity	Cost Driver	Cost	Driver Volume
Using ATM	Number of uses	$ 1,893,600	3,156,000	uses
Visiting branch	Number of visits	1,641,600	342,000	visits
Processing transactions	Number of transactions	8,331,840	126,240,000	transactions
Managing functions	Total deposits	7,283,200	$ 598,445,000	in deposits
Total overhead		$ 19,150,240

	Emily	Jacob
ATM uses	40	130
Branch visits	5	45
Number of transactions	200	520
Average deposit	$ 10,000	$ 10,000

Required:

Compute the operating profit for Northwestern Bank.
Compute the profit from Emily and Jacob, assuming that customer costs are based only on deposits. Interest costs = 0.3 percent of deposits; operating costs are 3.2 percent (= $19,150,240/$598,445,000) of deposits.
Compute the profit from Emily and Jacob, assuming that customer costs are computed using the information in the activity-based costing analysis.

Compute the operating profit for Northwestern Bank.

Operating profit

	profit per customer
emily
jacob

Required C

Compute the profit from Emily and Jacob, assuming that customer costs are computed using the information in the activity-based costing analysis.

Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Loss amounts should be indicated by a minus sign.

Show less

	Emily	Jacob
Sales revenue
Interest on deposit
Total operating cost
Customer profit or (loss)

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