Question

Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $360,000 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 17,000 500 $ 290,000
Commercial 6,000 400 $ 190,000
If Banc Corp. Trust uses a bankwide rate based on the number of loans processed, what would be the total costs for the Consumer Department?

Answer 1

Consumer Department= $200,000

Step-by-step explanation:

Giving the following information:

Loans Processed

Consumer= 500

Commercial= 400

Total= 900

Total estimated overhead= $360,000

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= $400 per loan processed

Now, we can allocate overhead to Consumer Department:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Consumer Department= 400*500

Consumer Department= $200,000