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 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:
$$\begin{array} { | l | l | l | r | }
\hline \text { Department } & \text { DLH } & \text { Loans Processed } & \text { Direct Costs } \
\hline \text { Consumer } & 14,000 & 700 & \$ 280,000 \
\hline \text { Commercial } & 8,000 & 300 & \$ 180,000 \
\hline
\end{array}$$
Banc Corp.Trust estimates that it costs $500 to analyze and close a commercial loan.This amount has been included in the $396,000 of indirect costs.How much of the $396,000 indirect costs should be allocated to the Consumer Department?

A) $246,000.
B) $280,000.
C) $172,200.
D) $116,000.

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 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: 
$$\begin{array} { | l | l | l | r | } 
\hline \text { Department } & \text { DLH } & \text { Loans Processed } & \text { Direct Costs } \
\hline \text { Consumer } & 14,000 & 700 & \$ 280,000 \
\hline \text { Commercial } & 8,000 & 300 & \$ 180,000 \
\hline
\end{array}$$
Banc Corp.Trust estimates that it costs $500 to analyze and close a commercial loan.This amount has been included in the $396,000 of indirect costs.How much of the $396,000 indirect costs should be allocated to the Consumer Department?

A) $246,000.
B) $280,000.
C) $172,200.
D) $116,000.

Quizplus · Accepted Answer

Using the departmental overhead rates, the indirect costs allocated to Consumer Department can be calculated as follows:
Consumer Loans:
Indirect costs allocated based on DLH = $396,000 x (4,000 DLH / 12,000 DLH) = $132,000
Commercial Loans:
Indirect costs allocated based on DLH = $396,000 x (8,000 DLH / 12,000 DLH) = $264,000
Indirect costs allocated based on number of loans processed = $500 x 8,000 loans = $4,000,000
Total indirect costs allocated to Commercial Loans = $264,000 + $4,000,000 = $4,264,000
Therefore, the total indirect costs allocated to the two departments = $132,000 + $4,264,000 = $4,396,000
The indirect costs allocated to the Consumer Department = $132,000, which is Option C.

Banc CorpTrust Is Considering Either a Bankwide Overhead Rate or Department