The Muskego National Bank is considering either a bankwide overhead rate or depa
ID: 2371062 • Letter: T
Question
The Muskego National Bank is considering either a bankwide overhead rate or department overhead rates to allocate $250,000 of overhead 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
9,000
400
$200,000
Commercial
6,000
100
$150,000
If Muskego uses a bankwide rate based on direct labor hours, what would be the overhead costs allocated to the Consumer Department?
$100,000
$150,000
$250,000
$350,000
Department
DLH
Loans Processed
Direct Costs
Consumer
9,000
400
$200,000
Commercial
6,000
100
$150,000
Explanation / Answer
Answer: B
Total DLH = 15,000;
OH rate = $250,000/15,000 = $16.67/DLH;
costs assigned to Consumer department = $16.67 x 9,000 = $150,000, or, Consumer allocated (9,000/15,000)($250,000) = $150,000.