Vargas Financial (VF)only Offers Checking Accounts Data on Two Representative Customers Are Shown

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:
$$\begin{array} { | l | l | r | l | } \hline \text { Acturity } & \text { Cost Driver } & \text { Cost } & \text { Driver Volume } \\\hline \text { Use ATM } & \begin{array} { l } \text { number of } \\\text { uses }\end{array} & \$ 2,00,000 & \begin{array} { l } 10,000,000 \\\text { uses }\end{array} \\\hline \text { Visit branch } & \begin{array} { l } \text { number of } \\\text { visits }\end{array} & 6,000,000 & 750,000 \text { visits } \\\hline \text { Process } & \begin{array} { l } \text { number of } \\\text { transaction }\end{array} & 4,000,000 & 40,000,000 \\\hline \text { transactions } & & \\\hline \begin{array} { l } \text { transactions } \\\text { overhead bank }\end{array} & \text { total deposits } & 8,000,000 & \$ 450,000,000 \\\hline \begin{array} { l } \text { Total } \\\text { overhead }\end{array} && \underline{\$ 20,000,000} & \\\hline\end{array}$$
Data on two representative customers are shown
$$\begin{array} { | l | r | r | } \hline & \text { Customer } A & \text { Customer B } \\\hline \text { ATM uses } & 300 & 50 \\\hline \text { Branch visits } & 5 & 20 \\\hline \text { Number of transactions } & 60 & 1,200 \\\hline \text { Average deposit } & \$ 450 & \$ 10,000 \\\hline\end{array}$$
Required:
(a)Compute the operating profits of the 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.