ABC Problem (25 Points) (Use Excel template provided) Royal Financial Services (RFS) provides front end loan origination services for a number of banks who process and maintain loan portfolios. RFS accepts applications from customers and processes them through closing of the loan agreement before turning the loan over to customer banks. RFS is paid regardless of whether the loan closes or not. RFS currently services three types of loans - residential mortgages, auto loans, and personal unsecured loans. RFS has no cost accounting system so total operating expenses are simply allocated to each product line based on revenue. For the year just ended, RFS reported financial results as follows: Mortgage Auto Personal Annual Volume of 1500 6000 4000 11500 Origination Fee/Unit $350 $200 $115 Total Revenues $525,000 $1,200,000 $460,000 2,185,000 Operating Expense $504,673 $1,153,538 $442,189 2,100,400 Profit $ 20,32746,462 17,811 84,600 Profit % Revenue 3.9% 3.9% 3.9% 3.9% RFS management is concerned about the overall low profitability of the business and has asked you to apply activity-based analysis in order to give RFS a better understanding of relative product profitability. After extensive interviewing of staff and analysis of RFS's cost structure, you determine there are four primary activities that RFS performs, with cost drivers and total cost as follows: Persona Total Cost Accept applications obtain credit referrals # pages per application 4 616,000 # credit sources/ 2 2 332,500 Do loan analysis # hours analysis/ applic. 2 656,000 # hours to close loan Close loan 4 2 495,900