Which of these is an advantage unique to checking accounts?
a. Checking accounts enable the transfer of money electronically.
b. Checking accounts allow used checks to act as receipts.
c. Checking accounts use debit cards for easy access to money.
d. Checking accounts are set up to earn more interest if used more.
Which of these is an advantage unique to checking accounts?
a. Checking accounts enable the transfer of money electronically.
b. Checking accounts allow used checks to act as receipts.
c. Checking accounts use debit cards for easy access to money.
d. Checking accounts are set up to earn more interest if used more.
Related questions
Customers as a Cost Object
Morrisom National Bank has requested an analysis of checkingaccount profitability by customer type. Customers are categorizedaccording to the size of their account: low balances, mediumbalances, and high balances. The activities associated with thethree different customer categories and their associated annualcosts are as follows:
| Opening and closing accounts | $300,000 |
| Issuing monthly statements | 450,000 |
| Processing transactions | 3,075,000 |
| Customer inquiries | 600,000 |
| Providing automatic teller machine (ATM) services | 1,680,000 |
| Total cost | $6,105,000 |
Additional data concerning the usage of the activities by thevarious customers are also provided:
| Account Balance | |||
| Low | Medium | High | |
| Number of accounts opened/closed | 22,500 | 4,500 | 3,000 |
| Number of statements issued | 675,000 | 150,000 | 75,000 |
| Processing transactions | 27,000,000 | 3,000,000 | 750,000 |
| Number of telephone minutes | 1,500,000 | 900,000 | 600,000 |
| Number of ATM transactions | 2,025,000 | 300,000 | 75,000 |
| Number of checking accounts | 57,000 | 12,000 | 6,000 |
Required:
1. Calculate a cost per account per year bydividing the total cost of processing and maintaining checkingaccounts by the total number of accounts. Round your answer to thenearest cent.
? $per account per year
What is the average fee per month that the bank should charge tocover the costs incurred because of checking accounts? Round youranswer to the nearest cent.
? $per month
2. Calculate a cost per account by customercategory by using activity rates. Round your answers to the nearestcent.
| Cost Per Account | |
| Low | $ |
| Medium | $ |
| High | $ |
3. Currently, the bank offers free checking toall of its customers. The interest revenues average $90 peraccount; however, the interest revenues earned per account bycategory are $80, $100, and $165 for the low-, medium-, andhigh-balance accounts, respectively. Calculate the average profitper account (average revenue minus average cost from Requirement1). Round your answer to the nearest cent.
? $per account
Also calculate the profit per account by using the revenue percustomer type and the unit cost per customer type calculated inRequirement 2. Round to the nearest cent. Use the minus sign toindicate a loss.
| Low-balance customers ? | $per account |
| Medium-balance customers ? | $per account |
| High-balance customers ? | $per account |
4. After the analysis in Requirement 3, a vicepresident recommended eliminating the free checking feature forlow-balance customers. The bank president expressed reluctance todo so, arguing that the low-balance customers more than made up forthe loss through cross-sales. He presented a survey that showedthat 50% of the customers would switch banks if a checking fee wereimposed. Explain how you could verify the presidentâs argument byusing ABC.
First, calculate the profits from loans, credit cards, and otherproducts by customer category (using ABC data). Next, compare 50%of the cross-sales profits from low-balance customers with thetotal loss from the low-balance checking accounts. If thecross-sales profits are ? ------------ than the loss, thepresidentâs argument has merit.
Question 11
Ronald's gross income is $60,000, and his living expensesconsume 75 percent of his gross income. According to financialexperts, Ronald should set aside ____ to cover emergencies.
| A. | $5,000 to $10,000 | |
| B. | $22,500 to $45,000 | |
| C. | $11,250 to $22,500 | |
| D. | $15,000 to $30,000 |
Question 12
Which of the following is not a benefit of a savingsaccount?
| A. | A way to achieve short-term savings goals | |
| B. | Builds funds for large, irregular expenses | |
| C. | Protection against inflation | |
| D. | A way to save for your child's education |
Question 13
Stock brokerage firms typically offer
| A. | money market mutual fund accounts. | |
| B. | savings accounts. | |
| C. | certificates of deposit. | |
| D. | checking accounts. |
Question 14
Absent-minded Alfred lost his ATM card on May 1. He reported itmissing the next day; however, $600 had been withdrawn from hischecking account. According to the Electronic Funds Transfer Act,how much of this $600 loss is Alfred responsible for?
| A. | $600 | |
| B. | $50 | |
| C. | $500 | |
| D. | $0 |
Question 15
A check drawn on a financial institution, backed by thefinancial institution's finances, and made out to a specific payeeis called a
| A. | cashier's check. | |
| B. | money order. | |
| C. | certified check. | |
| D. | traveler's check. |
Question 16
If Gus Solis believes interest rates are going to fall in thenear future and remain low for several years, Gus should now
| A. | invest in a long-term, fixed-rate certificate of deposit. | |
| B. | bury his money in fruit jars in the back yard. | |
| C. | invest in a variable-rate certificate of deposit. | |
| D. | invest in a short-term, fixed-rate certificate of deposit. |
Question 17
Which of the following could be the most expensive way ofprotecting yourself from fees should you overdraft your checkingaccount?
| A. | An automatic funds transfer agreement | |
| B. | Paying the overdraft/bounced check fee | |
| C. | Opt-in overdraft/bounce protection | |
| D. | An automatic overdraft loan agreement |
Question 18
Not-for-profit, common-bond financial institutions that areowned by their members are called
| A. | credit bureaus. | |
| B. | mutual savings banks. | |
| C. | savings banks. | |
| D. | credit unions. |
Question 19
The Federal Deposit Insurance Corporation (FDIC) currentlyinsures against loss of up to ____ per person in an individualaccount at any one institution.
| A. | $50,000 | |
| B. | $100,000 | |
| C. | $250,000 | |
| D. | $500,000 |
Question 20
Which of the following types of payment instruments could youget at your local post office?
| A. | Traveler's check | |
| B. | Cashier's check | |
| C. | Certified check | |
| D. | Money order |
