Banc Corp. Trust is considering either a bankwide overhead rate or department ov

Question

Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $468,000 of indirect costs. The bankwide rate could be based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for Consumer Loans and a dual rate based on direct labor hours and the number of loans processed for Commercial Loans. The following information was gathered for the upcoming period:

Banc Corp. Trust estimates that it costs $600 to analyze and close a commercial loan. This amount has been included in the $468,000 of indirect costs. How much of the $468,000 indirect costs should be allocated to the Consumer Department?

Department DLH Loans Processed Direct Costs Consumer 16,000 800 $ 270,000 Commercial 9,000 400 $ 150,000

Banc Corp. Trust estimates that it costs $600 to analyze and close a commercial loan. This amount has been included in the $468,000 of indirect costs. How much of the $468,000 indirect costs should be allocated to the Consumer Department?

Explanation / Answer

Answer

Costs per loan would be = [Total costs-(Costs to analyze loan*Number of loans processed of commercial)]/Total loans processed

=[468000-(600*400)] / (800+400)

=$190

Hence total indirect costs to be allocated to the Consumer = (190*400)+(600*400)

=$316000(C).

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