Northwestern Bank (NB) offers only checking accounts. Customers can write checks and use a network of automated
Question:
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.
Step by Step Answer: