The Muskego National Bank is considering either a bankwide overhead rate or depa

Question

The Muskego National Bank is considering either a bankwide overhead rate or department overhead rates to allocate $255,000 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:

$500.00 per loan.

$11.81 per hour.

$14.17 per hour.

$850.00 per loan.

The Muskego National Bank is considering either a bankwide overhead rate or department overhead rates to allocate $255,000 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:

Explanation / Answer

Overhead rate = Indirect costs/direct labour hours

=255000/18000

=$14.17 per hour

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