Differential Costing As pointed out earlier in ‘‘Here’s the Real Kicker,’’ Kicker changed banks a…

Differential Costing As pointed out earlier in ‘‘Here’s the Real Kicker,’’ Kicker changed banks a couple of years ago because the loan officer at its bank moved out of state. Kicker saw that as an opportunity to take bids for its banking business and to fine-tune the banking services it was using. This problem uses that situation as the underlying scenario but uses three banks: FirstBank, Community Bank, and Regional One Bank. A set of representative data was presented to each bank for the purpose of preparing a bid. The data are as follows: Checking accounts needed: 6 Checks per month:* 2,000 Foreign debits/credits on checking accounts per month: 200 Deposits per month:* 300 Returned checks:* 25 per month Credit card charges per month: 4,000 Wire transfers per month: 100, of which 60 are to foreign bank accounts Monthly credit needs (line of credit availability and cost): $100,000 average monthly usage *These are overall totals for the six accounts during a month. Internet banking services? Knowledgeable loan officer? Responsiveness of bank?

FirstBank Bid:

Checking accounts: $5 monthly maintenance fee per account $0.10 foreign debit/credit $0.50 earned for each deposit $3 per returned check Credit card fees: $0.50 per item Wire transfers: $15 to domestic bank accounts, $50 to foreign bank accounts Line of credit: Yes, this amount is available, interest charged at prime plus 2 percent, subject to a 6 percent minimum interest rate Internet banking services? Yes, full online banking available: $15 one-time setup fee for each account $20 monthly fee for software module The loan officer assigned to the potential Kicker account had 10 years of experience with medium to large business banking and showed an understanding of the audio industry.

Community Bank Bid: Checking accounts: No fees for the accounts, and no credits earned on deposits $2.00 per returned check Credit card fees: $0.50 per item, $7 per batch processed. Only manual processing was available, and Kicker estimated 20 batches per month Wire transfers: $30 per wire transfer Line of credit: Yes, this amount is available: interest charged at prime plus 2 percent subject to a 7 percent minimum interest rate Internet banking services? Not currently, but within the next six months The loan officer assigned to the potential Kicker account had four years of experience with medium to large business banking, none of which pertained to the audio industry. RegionalOne Bank Bid: Checking accounts: $5 monthly maintenance fee per account to be waived for Kicker $0.20 foreign debit/credit $0.30 earned for each deposit $3.80 per returned check Credit card fees: $0.50 per item Wire transfers: $10 to domestic bank accounts, $55 to foreign bank accounts Line of credit: Yes, this amount is available: interest charged at prime plus 2 percent subject to a 6.5 percent minimum interest rate Internet banking services? Yes, full online banking available: one-time setup fee for each account waived for Kicker $20 monthly fee for software module The loan officer assigned to the potential Kicker account had two years of experience with large business banking. Another branch of the bank had expertise in the audio industry and would be willing to help as needed. This bank was the first one to submit a bid.

Required:

1. Calculate the predicted monthly cost of banking with each bank.

2. Conceptual Connection: Suppose Kicker felt that full online Internet banking was critical. How would that affect your analysis from Requirement 1? How would you incorporate the subjective factors (e.g., experience, access to expertise)

 

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