10-30: Rock Solid Bank and Trust (RSB&T) offers only checking accounts.

Customers can write checks and use a network of a

investing the money deposited; currently , it averages 5.2 percent annually on ints investments of thsoe deposits. To compe
percent on all deposits. A recent study classified the bank's annual operating costs into four activities:
Activity Cost Driver Cost
Using ATM Number of Uses 1,500,000
Visiting Branch Number of Visits 900,000
Processing Transaction Number of Transactions 6,600,000
Managing functions Total Deposits 6,000,000
Total Overhead 15,000,000
Data on two representative customers follows:
A B
ATM Uses 100 200
Branch Visits 5 20
Number of Tranactions 40 1,500
Average Deposit 6,000 6,000
Required:
a. Compute RSB&T's operating profit.
Sales Revenue 19,500,000
Costs:
Interest on Deposits 1,875,000
Operating Costs 15,000,000
Total Costs 16,875,000
Operating Profit 2,625,000

b. Compute the profit from Customer A and Customer B, assuming that customer costs are based only on deposi
costs are 4 percent ( = $15,000,000 / $375,000,000) of deposit.
A B
Sales Revenue 312 312
Costs:
Interest on Deposits 30 30
Operating Costs 240 240
Total Costs 270 270
Operating Profit 42 42

c. Compute the profit from Customer A and Customer B, assuming that customer costs are computed using the in
A B
Sales Revenue 312.00 312.00
Interest on Deposit 30.00 30.00
Operating Costs
ATM Uses 75.00 150.00
Branch Visits 30.00 120.00
# of Trans 3.30 123.75
Average Deposit 96.00 96.00
Total Operating Cost 204.30 489.75
Customer Profit/Loss 77.70 (207.75)
10-31: Refer to the data in Exercise 10-30
Required:
a. How can RSB&T use the information from the activity -based costing analysis to manage its costs?

RSB&T can use the information in its activity-based costing analysis to see which item is using the most
each time a customer visits the branch the average amount that it is costing the company is $6. The com
customes stay in the store, find ways to use fewer staff on slow times at the store, or possibly find ways
customer visit. This would help insure that the company no longer is wasting money on this one area of
b. What does RSB&T need to consider before implemeting your suggestion from requriement a?
Before RSB&T implemintings any changes to the way stores are run, the company needs to make sure i
care aspect of the business. If the customers feel that they are no longer being treated up to par they m
the bank to lose business.

10-36: Kinnear Plastics manufactures various components for the aircraft and marine industry. Kinnear buys plastic from tw
Kinnear chooses the vendor based on price. Once the plastic is received, it is inspected to ensure that it is suitable for produ
The controller at Kinnear collected the following information on purchases for the past year:
Tappan Hill Tappan
Total Purchases (tons) 4,400 8,200 Hill
Plastic Discarded 110 410

The purchasing manager has just received bids on an order for 150 tons of plasticfrom both Tappan and Hill. Tappan bid $1,
Required:
Assume that the average quality, measured by amounts discarded from the two companies will continue as in the past. Wh
purchasing manager select? Explain.

While choosing to purchase with Hill originally appears to save the company money, it actually will cost them. Five
will have to be discarded versus only 2.5 percent from Tappan. Purchasing from Hill is $2,850 cheaper when purcha
$10,972.50. Purchasing in hill results in $5,415 more being spent on discarded plastic. This means that the compan
from Hill rather than Tappan.

10-37: Refer to the data in Exercise 10-36.

Required:

a. Assume all else remains the same. What bid by Tappan would make Kinnear indifferent between bying from T
If the bid from Tappan was 1,499.10, than the cost would remain equal, and the company could purcha
b. Why, given the information, do you think Kinnear continues to buy plastic from Hill?

Looking at the information above it appears that usually Kinnear will buy its plastic from Hill. Depending
will believe that they will try and take a short cut before plugging in all the numbers, and accidently pur
how much thare are spending on discarded plastic. They may also have deals that we are not seeing, w
Tappan.
cks and use a network of automated teller machines. RSB&T earns revenue by
thsoe deposits. To compete with larger banks, RSB& T pays depositors 0.5
ties:
Driver Volume
2,000,000 uses 0.75 Per Use
150,000 visits 6 Per Visit
80,000,000 transactions 0.08 Per Trans
$375,000,000 in deposits 0.02 Per Deposit

are based only on deposits. Interest costs = 0.5 percent of deposits; operating

are computed using the information in the activity-based costing analysis.

nage its costs?

hich item is using the most resources, and find ways to lower the cost. Right now
the company is $6. The company may look to find ways to lower how long the
store, or possibly find ways to use lean management to drop the price of each
money on this one area of the business.
iement a?
pany needs to make sure it isn't doing anything that would change the customer
ng treated up to par they may leave for another bank, which in turn would cause

nnear buys plastic from two vendors: Tappan Corporation and Hill Enterprises.
hat it is suitable for production. Plastic that is deemd unsuitable is disposed of.

2.50% Discarded 224,865 Spent Total 3.75

5.00% Discarded 219,450 Spent total 7.5
5,415

n and Hill. Tappan bid $1,482 and Hill bid $1,463 per ton.

ontinue as in the past. Which supplier would you recommmend that the

ctually will cost them. Five Percent of the plastic received from Hill on average
2,850 cheaper when purchasing 150 tons, but the amount of discard will be
his means that the company is actually spending about $2,565 more purchasing

ent between bying from Tappan or Hill?

the company could purchase from either.
?

plastic from Hill. Depending on the size of the company, I believe that Kinnear
umbers, and accidently purchase from Hill because they have not caluculated
that we are not seeing, which could be why they normally order from Hill vs.
 5,557.50 Amount Spent on Discard - Amount more if purchas
10,972.50 Amount Spent on Discard
(5,415.00)
Amount more if purchased from Hill