Question

Banc Corp. Trust is considering either a bankwide overhead rate or department overhead rates to allocate $396,000 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 14,000 700 $ 280,000
Commercial 8,000 300 $ 180,000
If Banc Corp. Trust uses a bankwide rate based on the number of loans processed, what would be the total costs for the Commercial Department?

--$118,800.

-- $180,000.

-- $298,800.

-- $318,000.

Answer 1

Answer:

The correct answer is A.

Explanation:

Giving the following information:

Estimated overhead= $396,000

Department:

Consumer= 700

Commercia= 300

To calculate the estimated manufacturing overhead rate we need to use the following formula:

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

Estimated manufacturing overhead rate= 396,000/1,000= $396 per loan processed.

Now, we can allocate overhead:

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

Allocated MOH= 396*300= $118,800