Savings Bank of Lawrence Has Three Revenue-Generating Departments: Checking Accounts

question 39

Multiple Choice

Savings Bank of Lawrence has three revenue-generating departments: checking accounts, savings accounts, and loans.The bank also has three service areas: administration, personnel, and accounting.The direct costs per month and the interdepartmental service structure are shown below: How much cost would be allocated to the savings account area from administration using the direct method?

• A) $5,000
• B) $10,000
• C) $20,000
• D) $40,000

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Definitions:

Capital Structure

The composition of a company's liabilities and equity, defining how it finances its overall operations and growth.

M&M Proposition I

A principle of corporate finance stating that the value of a firm is unaffected by how it is financed, in the absence of taxes, bankruptcy costs, and asymmetric information.

Interest Tax Shield

The reduction in income taxes that results from taking allowable deductions for interest expenses.

Capital Structure

The mix of different forms of external financing used by a company, including debt, equity, and hybrid securities.