Answer-first summary for fast verification
Answer: USD0.65
The correct amount for the bank to charge per ATM visit according to the cost-plus pricing model is USD 0.65. This is calculated by adding the operating expense per ATM visit (USD 0.25), the estimated overhead cost allocated per ATM visit (USD 0.35), and the profit required per ATM visit (USD 0.05). The bank's target return on capital, which is 15%, is not directly applicable in this cost-plus pricing scenario as it is already captured through the required profit per ATM visit. The other options provided in the question are incorrect as they either neglect to include all necessary costs or incorrectly add an additional return on capital fee to the costs.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
No comments yet.
A bank's treasurer is concerned that the institution may not be adequately compensated for the services it provides to its customers. Therefore, the treasurer has asked a manager to evaluate and set a fee for these services. The manager opts to apply the cost-plus pricing strategy for their deposit services, specifically focusing on the automated teller machine (ATM) service. The following details are considered when determining the fee for each ATM transaction:
Based on the cost-plus pricing model, what should the bank charge per ATM transaction to ensure it covers costs and achieves its desired profit margin?
A
USD 0.30
B
USD0.65
C
USD 0.70
D
USD 0.74