Vargas Financial (VF) Only Offers Checking Accounts Required:
(A) Compute the Operating Profit for Vargas Financial

Essay

Vargas Financial (VF) only offers checking accounts. Customers can write checks and use a network of automated teller machines. VF earns revenue by investing the money deposited (subject to reserve requirements). Currently VF averages 6% return annually on its investments. In order to compete with larger banks, VF pays depositors 1% on all deposits. A recent study classified the operating costs of the bank into four activities. Data on these activities are:

Data on two representative customers are shown below:
$$\begin{array} { l r r } & \text { Customer A } & \text { Customer B } \\\text { ATM uses } & 300 & 50 \\\text { Branch visits } & 5 & 20 \\\text { Number of transactions } & 60 & 1,200 \\\text { Average deposit } & \$ 450 & \$ 10,000\end{array}$$
Required:
(a) Compute the operating profit for Vargas Financial.
(b) Compute the profit of Customer A and Customer B, assuming that customer costs are based only on deposits.
(c) Compute the profit of Customer A and Customer B, assuming that customer costs are computed using the information in the activity-based costing analysis.