Banc CorpTrust Is Considering Either a Bankwide Overhead Rate or Department

question 67

Multiple Choice

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:
$$\begin{array} { | l | l | l | r | } \hline \text { Department } & \text { DLH } & \text { Loans Processed } & \text { Direct Costs } \\\hline \text { Consumer } & 14,000 & 700 & \$ 280,000 \\\hline \text { Commercial } & 8,000 & 300 & \$ 180,000 \\\hline\end{array}$$
Banc Corp.Trust estimates that it costs $500 to analyze and close a commercial loan.This amount has been included in the $396,000 of indirect costs.How much of the $396,000 indirect costs should be allocated to the Commercial Department?

• A) $396,000.
• B) $246,000.
• C) $223,800.
• D) $216,000.

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Definitions:

Competitive Firm

A business operating in a market where it has little to no control over the price of its products because of competition from other firms.

Cost Table

A detailed listing of all costs associated with a project or business operation, used for budgeting and financial management purposes.

Break Even

The point at which total revenue equals total costs, making a business neither profitable nor unprofitable at this juncture.

Cost Curves

Graphical representations of the costs associated with producing different levels of output, aiding in economic and business decision-making.