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The Dedham Cooperative Bank is considering either a bank wide overhead rate or departmental overhead rates to allocate $2,000,000 of indirect costs. The bank wide rate would be based on either direct labor hours or the number of loans processed. The departmental rates would be based on direct labor time for Consumer Loans and a dual rate based on direct labor time and the number of loans processed for
Commercial Loans. The following information was gathered for the upcoming period:

-Management estimates that it now costs $2,000 to analyze and close a commercial loan. This amount has been included in the $2,000,000 of indirect costs. If the remaining indirect costs are allocated based on the number of loans processed, how much of the indirect costs should be allocated to the Consumer Department?
A) $960,000
B) $1,040,000
C) $1,600,000
D) $400,000

Question

Use the following to answer questions:
The Dedham Cooperative Bank is considering either a bank wide overhead rate or departmental overhead rates to allocate $2,000,000 of indirect costs. The bank wide rate would be based on either direct labor hours or the number of loans processed. The departmental rates would be based on direct labor time for Consumer Loans and a dual rate based on direct labor time and the number of loans processed for
Commercial Loans. The following information was gathered for the upcoming period:
 
-Management estimates that it now costs $2,000 to analyze and close a commercial loan. This amount has been included in the $2,000,000 of indirect costs. If the remaining indirect costs are allocated based on the number of loans processed, how much of the indirect costs should be allocated to the Consumer Department?
A) $960,000 
B) $1,040,000 
C) $1,600,000 
D) $400,000

Quizplus · Accepted Answer

The total indirect costs are $2,000,000. Since $2,000 per commercial loan is already included in this amount, the remaining indirect costs are allocated based on the number of loans processed. Assuming the Consumer Department processes 48% of the loans (as $960,000 is 48% of $2,000,000), $960,000 should be allocated to the Consumer Department.

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