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ACCOUNTINGUnited Savings Bank (USB) is examining the profitability of its Premier Account, a combined savings and checking account. Depositors receive a 2% annual interest rate on their average deposit. USB earns an interest rate spread of 3% (the difference between the rate at which it lends money and the rate it pays depositors) by lending money for home-loan purposes at 5%. Thus, USB would gain $60 on the interest spread if a depositor had an average Premier Account balance of$2,000 in 2017 The Premier Account allows depositors unlimited use of services such as deposits, withdrawals, checking accounts, and foreign currency drafts. Depositors with Premier Account balances of $1,000 or more receive unlimited free use of services. Depositors with minimum balances of less than$1,000 pay a $22-a-month service fee for their Premier Account. [math](\$ 2,000 \times 3 \%=\$60)[/math]. USB recently conducted an activity-based costing study of its services. It assessed the following costs for six individual services. THe use of these services in 2017 by three customers is as follows:$
$$
\begin{matrix}
\text{ } & \text{Activity-Based Cost per ""Transaction""} & \text{Account Usage}\\
\text{ } & \text{ } & \text{Lindell} & \text{Walker} & \text{Colston}\\
\text{Deposit/withdrawal with teller} & \text{\$ 2.50} & \text{44} & \text{49} & \text{4}\\
\text{Deposit/withdrawal with automatic teller machine (ATM)} & \text{0.80} & \text{12} & \text{24} & \text{13}\\
\text{Deposit/withdrawal on prearranged monthly basis} & \text{0.5} & \text{0} & \text{14} & \text{58}\\
\text{Bank checks written} & \text{8.20} & \text{8} & \text{2} & \text{3}\\
\text{Foreign currency drafts} & \text{12.10} & \text{6} & \text{1} & \text{5}\\
\text{Inquiries about account balance} & \text{1.7} & \text{7} & \text{16} & \text{6}\\
\text{Average Premier account balance for 2017} & \text{ } & \text{\$1.200} & \text{\$700} & \text{\$24.900}\\
\end{matrix}
$$
$. Assume Lindell and Colston always maintain a balance above$1.000, whereas Walker always has a balance below $1.000. 1. Compute the 2017 profitability of the Lindell, Walker, and Colston Premier Accounts at USB. 2. Why might USB worry about the profitability of individual customers if the Premier Account product offering is profitable as a whole? 3. What changes would you recommend for USB's Premier Account? ACCOUNTINGRita and Rick Redding own and operate a tomato grove. After preparing the following income statement, Rita and Rick are concerned about the loss on the No. 3 tomatoes.
$$
\begin{matrix}
\text{RITA AND RICK REDDING Income Statement For Year Ended December 31, 2017}\\
& \text{No. 1} & \text{No. 2} & \text{No. 3} & \text{Combined}\\
\text{Sales (by grade)}\\
\text{No. 1: 500,000 Ibs. @ \$1.80/lb }\ldots\ldots\ldots & \text{\$900,000}\\
\text{No. 2: 400,000 Ibs. @ \$1.25/lb} \ldots\ldots\ldots & \quad & \text{\$500,000}\\
\text{No. 3: 100,000 Ibs. @ \$0.40/lb}\ldots\ldots\ldots & \quad & \quad & \text{\$ 40,000}\\
\text{Total sales}\ldots\ldots\ldots & \quad & \quad & \quad & \text{\$1,440,000}\\
\text{Costs}\\
\text{Land preparation, seeding, and cultivating @ \$0.70/Ib} \ldots\ldots\ldots & \text{350,000} & \text{280,000} & \text{70,000} & \text{700,000}\\
\text{Harvesting, sorting, and grading @ \$0.04/Ib}\ldots\ldots\ldots & \text{20,000} & \text{16,000} & \text{4,000} & \text{40,000}\\
\text{Delivery costs .}\ldots\ldots\ldots & \text{10,000} & \text{7,000} & \text{3,000} & \text{20,000}\\
\text{Total costs . .} \ldots\ldots\ldots & \text{380,000} & \text{303,000} & \text{77,000} & \text{760,000}\\
\text{Net income (loss)} \ldots\ldots\ldots & \text{\$520,000} & \text{\$197,000} & \text{\$(37,000)} & \text{\$ 680,000}\\
\end{matrix}
$$
In preparing this statement, Rita and Rick allocated joint costs among the grades on a physical basis as an equal amount per pound. Also, their delivery cost records show that $17,000 of the$20,000 relates to crating the No. 1 and No. 2 tomatoes and hauling them to the buyer. The remaining $3,000 of delivery costs is for crating the No. 3 tomatoes and hauling them to the cannery. 1. Prepare reports showing cost allocations on a sales value basis to the three grades of tomatoes. Separate the delivery costs into the amounts directly identifiable with each grade. Then allocate any shared delivery costs on the basis of the relative sales value of each grade. (Round percents to the nearest one-tenth and dollar amounts to the nearest whole dollar.) 2. Using your answers to part 1, prepare an income statement using the joint costs allocated on a sales value basis. 3. Do you think delivery costs fit the definition of a joint cost? Explain.
