Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
bartleby

Concept explainers

bartleby

Videos

Textbook Question
Book Icon
Chapter 5, Problem 5.30E

ABC, product costing at banks, cross-subsidization. United Savings Bank (USB) is examining the profitability of its Premier Account, a combined savings and checking account. Depositors receive a 2% annual interest rate on their average deposit. USB earns an interest rate spread of 3% (the difference between the rate at which it lends money and the rate it pays depositors) by lending money for home-loan purposes at 5%. Thus. USB would gain $60 on the interest spread if a depositor had an average Premier Account balance of $2,000 in 2017 ($2, 000 × 3% = $60).

The Premier Account allows depositors unlimited use of services such as deposits, withdrawals, checking accounts, and foreign currency drafts.

Depositors with Premier Account balances of $1,000 or more receive unlimited free use of services. Depositors with minimum balances of less than $1,000 pay a $22-a-month service fee for their Premier Account.

USB recently conducted an activity-based costing study of its services. It assessed the following costs for six individual services. The use of these services in 2017 by three customers is as follows:

Chapter 5, Problem 5.30E, ABC, product costing at banks, cross-subsidization. United Savings Bank (USB) is examining the

Assume Lindell and Colston always maintain a balance above $1,000, whereas Welker always has a balance below $1,000.

  1. 1. Compute the 2017 profitability of the Lindell, Welker, and Colston Premier Accounts at USB.

Required

  1. 2. Why might USB worry about the profitability of Individual customers if the Premier Account product offering is profitable as a whole?
  2. 3. What changes would you recommend for USB’s Premier Account?
Blurred answer
Students have asked these similar questions
Consider the following data (in millions) from Trident Financial Incorporated, which has two main divisions, mortgage loans and consumer loans: Mortgage Consumer Loans Loans Average total assets Operating income Return on investment (ROI) $ 2,500 $ 530 $ 17,750 $ 2,485 21.20% 14.00% Required: 1. Based on ROI, which division is more successful? Mortgage loans Consumer loans 2. Trident uses residual income (RI) as a measure of the financial performance of its divisions. What is the RI for each division if the minimum desired rate of return is (a) 10%, (b) 15%, and (c) 20%? (Leave no cells blank. Negative amounts should be indicated by a minus sign. Enter your answers in millions.) Residual Income (RI) Mortgage Loans Consumer Loans (а) 10% |(b) 15% (c) 20%
A bank has estimated its expected (predicted) loan loss rate on its consumer loans at 3.25%. If the bank wishes to earn 8% on it consumer loans, what rate should it charge its customers?
Consider the following data (in millions) from Trident Financial Inc., which has two main divisions, mortgage loans and consumer loans:     Mortgage Loans Consumer Loans Average total assets $ 1,200   $ 21,500   Operating income $ 255   $ 2,795   Return on investment (ROI)   21.25 %   13.00 %     Required: 1. Based on ROI, which division is more successful?     multiple choice Mortgage loans Consumer loans     2. Trident uses residual income (RI) as a measure of the financial performance of its divisions. What is the RI for each division if the minimum desired rate of return is (a) 10%, (b) 15%, and (c) 20%? (Leave no cells blank. Enter "0" wherever required. Negative amounts should be indicated by a minus sign. Enter your answers in millions of dollars, rounded to nearest whole number.)

Chapter 5 Solutions

Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)

Ch. 5 - Prob. 5.11QCh. 5 - Prob. 5.12QCh. 5 - Activity-based costing is the wave of the present...Ch. 5 - Increasing the number of indirect-cost pools is...Ch. 5 - The controller of a retail company has just had a...Ch. 5 - Conroe Company is reviewing the data provided by...Ch. 5 - Prob. 5.17MCQCh. 5 - Cost hierarchy. Roberta, Inc., manufactures...Ch. 5 - ABC, cost hierarchy, service. (CMA, adapted)...Ch. 5 - Alternative allocation bases for a professional...Ch. 5 - Plant-wide, department, and ABC Indirect cost...Ch. 5 - Plant-wide, department, and activity-cost rates....Ch. 5 - ABC, process costing. Sander Company produces...Ch. 5 - Department costing, service company. DLN is an...Ch. 5 - Activity-based costing, service company....Ch. 5 - Activity-based costing, manufacturing. Decorative...Ch. 5 - ABC, retail product-line profitability. Fitzgerald...Ch. 5 - Prob. 5.28ECh. 5 - Activity-based costing. The job-costing system at...Ch. 5 - ABC, product costing at banks,...Ch. 5 - Problems 5-31 Job costing with single direct-cost...Ch. 5 - Job costing with multiple direct-cost categories,...Ch. 5 - Job costing with multiple direct-cost categories,...Ch. 5 - First-stage allocation, time-driven activity-based...Ch. 5 - First-stage allocation, time-driven activity-based...Ch. 5 - Department and activity-cost rates, service...Ch. 5 - Activity-based costing, merchandising. Pharmahelp,...Ch. 5 - Choosing cost drivers, activity-based costing,...Ch. 5 - ABC, health care. Crosstown Health Center runs two...Ch. 5 - Unused capacity, activity-based costing,...Ch. 5 - Unused capacity, activity-based costing,...Ch. 5 - ABC, implementation, ethics. (CMA, adapted) Plum...Ch. 5 - Activity-based costing, activity-based management,...
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Cost Accounting - Definition, Purpose, Types, How it Works?; Author: WallStreetMojo;https://www.youtube.com/watch?v=AwrwUf8vYEY;License: Standard YouTube License, CC-BY