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 Commercial 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 Commercial Department?

Quizplus · Accepted Answer

To calculate the indirect costs allocated to Commercial Department using bankwide rate based on direct labor hours, we need to find out the total direct labor hours (DLH) for the bank and the Commercial Department.

Total DLH for the bank = DLH for the Consumer Loans Department + DLH for the Commercial Loans Department
= 20,000 + 30,000 (given in the table)

Total DLH for the bank = 50,000

Now, we can calculate the bankwide overhead rate as follows:

Bankwide overhead rate = Total indirect costs / Total DLH
= $250,000 / 50,000
= $5 per DLH

To allocate the indirect costs to the Commercial Department, we need to multiply the Commercial Department's DLH by the bankwide overhead rate:

Indirect costs allocated to Commercial Department = Bankwide overhead rate x Commercial Department's DLH
= $5 x 30,000
= $150,000

Therefore, the correct answer is A) $100,000.

The Muskego National Bank Is Considering Either a Bankwide Overhead