Exercises

1.The University Credit Union (UCU) has engaged your services to determine the cost of its various activities. The following data are available for a representative branch.

Process

Deposits

Process

Checks

Balance

Inquiries

Other

Activities

Total Cost

Tellers

30%

40%

10%

20%

$150,000

Assistant Manager

10%

10%

5%

75%

$75,000

Managers

2%

3%

5%

90%

$90,000

The average branch processes 600,000 deposits and 1,250,000 check transactions

each year.

Required:

Compute the cost per deposit and the cost to process a check.

2.The QwikFill Corporation recently hired David Oxley to figure out ways to improve profit. David notes that, like virtually all gas stations, QwikFill’s stations also had an air pump that customers could use to fill air in their tires. As per David’s detailed cost report, an air pump’s fully allocated cost is around $1,200 per year. Variable costs are negligible. David offers two solutions. One is to eliminate the pump and save $1,200 each year. The second is to charge a quarter (25 cents) for each minute of operation. Currently, about 20 customers use the pump each day in any given gas station. The average customer takes about 3 minutes to check and inflate all tires.

Required:

a.At the current volume of operations, identify the increase in profit if David’s first proposal were to be implemented at all 243 of QwikFill’s stations. What is the profit with the second proposal?

b.Do you recommend following either of David’s proposals? Why or why not?



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