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 overhead costs. How much of the remaining overhead costs should be allocated to the Consumer Department?

Complete 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 couldbe based on either direct labor hours (DLH) or the number of loans processed. The departmental rates would be based on direct labor hours for ConsumerLoans 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.

Dept - - - - - - - DLH - - loan processed - - - d/cost

Consumer - 14000 - - - 700 - - - - - - - - 280,000

Commercial - 8000 - - 300 - - - - - - - 180,000

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 overhead costs. How much of the remaining overhead costs should be allocated to the Consumer Department?

$172,200

Explanation:

Number of commercial loans processed = 300

Cost of processing a commercial loan = $500

Overhead cost = $396,000

Total cost = 300 * $500 = $150,000

Overhead left = $(396,000 - 150,000) = $246,000

Overhead sharing between commercial and consumer department :

Total loans = (300 + 700) = 1000

Number of consumer department loan = 700

Consumer department overhead :

(246,000 / 1000) * 700

246 * 700 = $172,200

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