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

question 127

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.

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Definitions:

Job Order Cost System

An accounting system used to track the costs related to a specific job or batch of goods.

Process Cost System

An economic tracking system utilized for attributing costs to analogous products manufactured in large quantities and in a steady flow.

Custom Window Treatments

Specifically designed coverings for windows, tailored to individual preferences and measurements.

Job Order Costing

An accounting method used to track the production costs for specific jobs or batches, identifying the direct materials, direct labor, and overhead per job.