Explanation:
If the bank saves about 2% in operating expenses for each $50 held in balances above the minimum of $300, then a customer who maintains an average monthly balance of $400 saves the bank 4% in operating expenses.
That is, $400 - $300 = \frac{\`100}{\50`} = 2 \times 2\% = 4\% saving in the operating costs
New operating expenses = $3.00 - (4% \times `3.00`) = \`2.88`$
The appropriate amount that the bank should charge to protect its profit margin is therefore
\`2.88 + 1.50 + 0.70 = \ per month
Note.
Overheads are the expenditure which cannot be conveniently traced to or identified with any particular cost unit, unlike operating expenses such as raw material and labor. That's why we add the $1.5 overhead as a separate item.
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Q.4091 Young Money Savings Bank realizes that its basic transaction account, which requires a $300 minimum balance, costs this savings bank an average of $3.00 per month in servicing costs (including labor and computer time) and $1.50 per month in overhead expenses. The savings bank also tries to build in a $0.70 per month profit margin on these accounts. Further analysis of customer accounts reveals that for each $50 above the $300 minimum in the average balance maintained in its transaction accounts, Young Money Savings Bank saves about 2% in operating expenses with each account. For a customer who consistently holds an average balance of $400 per month, how much should the bank charge to cushion its profit margin?
A
$4.00
B
$4.82
C
$5.08
D
$5.10