Customer Profitability Analysis

question 45

Essay

Customer profitability analysis.ChoiceBank's management is evaluating the profitability of providing special checking accounts to new businesses that start in its town.The company's financial analysts have developed the following cost information:

On average,each account generates $180 per year in fees and interest.After inquiring whether the costs above are all differential,you learn that the $200,000 per year cost to acquire accounts includes $30,000 of advertising that ChoiceBank would have done with or without the new accounts.The remainder of the $200,000 costs are differential.Further,you learn that $10 of the $150 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 7,000 new business commercial accounts each year.
Required:
Should ChoiceBank continue to offer these promotional new business accounts?

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Definitions:

Intermittent Reinforcement

A conditioning schedule in which a behavior is rewarded at random intervals, which can lead to a high level of response persistence.

Desired Behaviour

The specific actions or reactions that an organization or individual aims to elicit from others, typically to achieve a certain goal or outcome.

Reinforcement Schedule

A pattern that determines how often a desired behavior is reinforced in operant conditioning, influencing how quickly and robustly that behavior is learned.

Negative Reinforcement

A behavioral principle where the removal of an unfavorable outcome or stimulus strengthens a desired behavior.