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Question 12.7: A bank determines from an analysis of its cost-accounting fi...

A bank determines from an analysis of its cost-accounting figures that for each $500 minimum-balance checking account it sells account processing and other operating costs will average $4.87 per month and overhead expenses will run an average of $1.21 per month. The bank hopes to achieve a profit margin over these particular costs of 10 percent of total monthly costs. What monthly fee should it charge a customer who opens one of these checking accounts?

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The relevant formula is:

 

Unit Price Charged per Month = Operating Expense Per Unit + Overhead Expense Per Unit + Planned Profit Margin Per Unit

 

In this case:

 

Unit Price Charged Per Month = $4.87 + $1.21 + 0.10 x ($4.87 + $1.21) = $6.69

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