Question

Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 of indirect costs. The bankwide rate could be based on either direct hours (DLH) or the number of loans processed. The departmental rate would be based on direct labor hours cor Consumer Loans and a dual rate based on direct hours and the number of loans processed for Commerical Loans. The following information was gathered for the upcoming period: Consumer DLH 14,000 Loans Processed 700 Direct Costs $280,000 Commerical DLH 8,000 Loans Processed 300 Direct Costs $180,000. How much of the $396,000 indirect costs should be allocated to the Commerical Department, if Banc Corp. Trust uses a bankwide rate based on the number of loans processed?

Answer 1

Bankwide rate based on loans processed = Total Overheads/Total Loans

= 396,000/(700+300)

= $396 per loan processed

Overhead assigned to Commercial Department = Loans processed*Rate per loan

= 700*396

= $277,200