Customer Profitability Analysis

question 116

Essay

Customer profitability analysis.TMBank's management is evaluating the profitability of providing special Christmas Club accounts.The company's financial analysts have developed the following cost information:

On average,each account generates $75 per year in fees and interest.After inquiring whether the costs above are all differential,you learn that the $100,000 per year cost to acquire accounts includes $10,000 of advertising that TMBank would have done with or without the new accounts.The remainder of the $100,000 costs are differential.Further,you learn that $5 of the $50 to process and service accounts are general office costs allocated to these accounts,which are incurred whether or not the bank has the new accounts.The bank has an average of 3,500 new Christmas Club accounts each year.
Required:
Should TMBank continue to offer these promotional accounts?

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Definitions:

Dunnett Test

A post hoc test used after ANOVA to compare multiple groups against a single control group, assessing if there are significant differences between the control and each of the other groups.

Scheffé Test

A statistical procedure for comparing more than two means while controlling the overall Type I error rate.

Analytical Comparisons

The process of examining similarities and differences between two or more items or data sets, often to evaluate or assess characteristics.

Null Hypothesis

Restated, it is the hypothesis in statistical testing that assumes no significant difference or relationship exists between specified populations, parameters, or data sets.