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 the number of loans processed,what would be the total costs for 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 the number of loans processed,what would be the total costs for the Commercial Department?

Quizplus · Accepted Answer

If Muskego uses a bankwide rate based on the number of loans processed, the calculation for the rate is as follows:

Bankwide overhead rate = Total indirect costs / Total number of loans processed

Bankwide overhead rate = $250,000 / 5,000 loans

Bankwide overhead rate = $50 per loan

To calculate the total costs for the Commercial department:

Commercial department overhead cost = Bankwide overhead rate x Commercial department's number of loans processed

Commercial department overhead cost = $50 per loan x 4,000 loans

Commercial department overhead cost = $200,000

Therefore, the total costs for the Commercial department would be $200,000.

The Muskego National Bank Is Considering Either a Bankwide Overhead