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.

Data on two representative customers follow: 

Required

a. Compute the operating profit for Northwestern Bank.

b. 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 (= $18,000,000/ $562,500,000) of deposits.

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

Transcribed Image Text:

Activity Using ATM Visiting branch.. Processing transaction... Managing functions Total overhead.. Cost Driver Cost Number of uses $ 1,800,000 Number of visits 1,080,000 Number of transactions Total deposits Driver Volume 3,000,000 uses 225,000 visits 7,920,000 120,000,000 transactions 7,200,000 $562,500,000 in deposits $18,000,000