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    Activity based costing of customers for Sandy Sun Bank

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    Sandy Sun Bank and Trust (SSB&T) offers only checking accounts. Customers can write checks and use a network of ATM's. SSB&T earns revenue by investing the money deposited; currently it averages 5.2 percent annually on it's investments of those deposits. To compete with larger banks, the bank pays depositors .05% on all deposits. A recent study classified the banks annual operating costs into four activities.

    Activity Cost Driver Cost Driver Volume

    Using ATM--------------number of uses $750,000 10,000,000 uses
    Visiting branch..........number of visits 2,250,000 750,000 visits
    Processing transaction...number of transactions. 1,500,000 40,000,000 transactions
    Managing functions........total deposits 3,000,000 $187,500,000 in deposits

    TOTAL OVERHEAD $7,500,000

    DATA ON TWO REPRESENTATIVE CUSTOMERS FOLLOWS:

    Customer A Customer B
    ATM uses......................................200 250
    branch visits..................................5 20
    Number of transactions................40 1,500
    Average deposit..........................$200 $6,000

    REQUIRED:

    a. Compose SSB&T's operating profits.

    b. Compute the profit from customer A and Customer B assuming that customer costs are based only on deposits. Interest costs=.05% of deposits; operating costs are 4% (=7,500,000/187,500,000) of deposits

    c. Compute the profit from customer A and customer B assuming that customer costs are computed using the information in an activity based costing analysis.

    d. How can SSB&T use the information from activity based costing analysis to manage it's costs?

    e. What does SSB&T need to consider before implementing your suggestions from requirement d?

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    https://brainmass.com/business/auditing/activity-based-costing-customers-sandy-sun-bank-385145

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    Sandy Sun Bank and Trust (SSB&T) offers only checking accounts. Customers can write checks and use a network of ATM's. SSB&T earns revenue by investing the money deposited; currently it averages 5.2 percent annually on it's investments of those deposits. To compete with larger banks, the bank pays depositors .05% on all deposits. A recent study classified the banks annual operating costs into four activities.

    Activity Cost Driver Cost Driver Volume
    using atm--------------number of uses $750,000 10,000,000 uses
    visiting branch..........number of visits 2,250,000 750,000 visits
    processing transaction...number of transac. 1,500,000 40,000,000 trasnact
    managing functions........total deposits 3,000,000 $187,500,000 in deposits

    TOTAL OVERHEAD $7,500,000

    DATA ON TWO ...

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