Question

Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $486,000 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:

Department	DLH		Loans Processed		Direct Costs
Consumer	17,000		650		$	280,000
Commercial	10,000		350		$	160,000

Banc Corp. Trust estimates that it costs $450 to analyze and close a commercial loan. What is the overhead rate if Banc Corp. Trust allocates the remaining indirect costs using direct labor hours?

Multiple Choice

• $18.00 per hour.

• $1,000 per loan.

• $12.17 per hour.

• $750 per loan.

Answer 1

Answer: $12.17 per hour

Explanation

Computation of the overhead rate if Banc Corp. Trust allocates
the remaining indirect costs using direct labor hours
Indirect costs	$   486,000.00
Less: estimated costs to analyze and close a commercial loan	$   157,500.00
($450 x 350))
Estimated total overhead cost	$   328,500.00
÷ Total direct labor hours (17,000 + 10,000)	27,000.00
Overhead rate	$          12.17	per hour