Question

Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate...

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:

Department DLH Loans Processed Direct Costs
Consumer 14,000 700 $ 280,000
Commercial 8,000 300 $ 180,000

If Banc Corp. Trust uses a bankwide rate based on direct labor hours, what would be the indirect costs allocated to the Commercial Department?

$148,500.

$138,000.

$144,000.

$180,000.
Business   Accounting   
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Answer #1

Indirect cost = $396,000

Direct labor hour used in Consumer Department = 14,000

Direct labor hour used in Commercial Department = 8,000

Total direct labor hour = Direct labor hour used in Consumer Department + Direct labor hour used in Commercial Department

= 14,000 + 8,000

= 22,000

Overhead application rate = Indirect cost/Total direct labor hour

= 396,000/22,000

= $18 per direct labor hour

Indirect cost allocated to commercial department = Direct labor hour used in Commercial Department x Overhead application rate

= 8,000 x 18

= $144,000

Third option is correct

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