The Muskego National Bank is considering either a bankwide overhead rate or department overhead rates to allocate $250,000 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: If Muskego uses a bankwide rate based on direct labor hours,what would be the indirect costs allocated to the Consumer Department?

Question

The Muskego National Bank is considering either a bankwide overhead rate or department overhead rates to allocate $250,000 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:  If Muskego uses a bankwide rate based on direct labor hours,what would be the indirect costs allocated to the Consumer Department?

Quizplus · Accepted Answer

To allocate the indirect costs using a bankwide rate based on direct labor hours, we need to calculate the bankwide overhead rate first.

Bankwide overhead rate = Total indirect costs / Total direct labor hours

Bankwide overhead rate = $250,000 / 10,000 DLH = $25 per DLH

To allocate the indirect costs to the Consumer Department, we need to multiply the bankwide overhead rate by the direct labor hours of the Consumer Department.

Indirect costs allocated to Consumer Department = Bankwide overhead rate * Direct labor hours of Consumer Department
Indirect costs allocated to Consumer Department = $25 per DLH * 6,000 DLH = $150,000

Therefore, the answer is B.

The Muskego National Bank Is Considering Either a Bankwide Overhead