Question

Banc Corp. Trust is considering either a bank-wide overhead rate or department overhead rates to allocate $420,000 of indirect costs. The bank-wide 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 12,000 800 $270,000
Commercial 8,000 200 $170,000

Banc Corp. Trust estimates that it costs $400 to analyze and close a commercial loan. This amount has been included in the $420,000 of indirect costs.
Required:
How much of the $420,000 indirect costs should be allocated to the Commercial Department?

Answer 1

Answer: A. $144,000

Explanation:

Overhead rate to allocate was $420,000

But $270,000 was

Subtracting we get

$150,000.

Now after 6 days, we have

$150,000-$6000=$144,000

Answer 2

Answer: The answer is $272,000

Explanation:

The overhead rate to allocate is $420,000 of indirect cost

420,000 - 400 (200)

= 420,000 - 80,000

= $340,000

To calculate the cost per loan

$340,000 / ( 200 + 800)

= $340,000 / 1,000

= $340 per loan

To calculate how much of the indirect cost to allocate to commercial department

$340 (800) + $400 (0)

= $272,000