The Muskego National Bank is considering either a bankwide overhead rate or depa

Question

The Muskego National Bank is considering either a bankwide overhead rate or department overhead rates to allocate $255,000 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:

   

If Muskego uses a bankwide rate based on the number of loans processed, what would be the total costs for the Commercial Department?

$255,000.

$51,000.

$153,000.

$204,000.

  Department DLH     Loans Processed       Direct Costs   Consumer 9,000     400                  $144,000       Commercial 6,000     100                  $153,000    

Explanation / Answer

Total costs of commercial department:

= $153,000+$255,000×(6,000÷15,000)

= $255,000

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