Question

The loan department of a bank offers 3 different types of loans: signature, mortgage, and commercial.

The following cost and activity estimates are available for the upcoming year:

Activity Activity Cost Activity Driver

Answering customer questions $ 35,000 customer inquiries

Filling out loan application     60,000 pages

Loan application processing     30,000 data entry hours

Loan analysis & evaluation   100,000 loan dollars

Preparation of loan checks     28,000 checks prepared

Posting of loan payments     42,000 checks received

Total $295,000

The following activity driver usage information is available for each type of loan:

Signature Mortgage Commercial Total

# of Customer Inquiries   9,800   1,400   2,800        14,000

# of Pages 30,000 75,000 15,000 120,000

Data Entry Hours   1,250   3,125      625     5,000

Loan Dollars            500,000         3,000,000          1,500,000                        5,000,000

# checks prepared   9,800    1,400   2,800        14,000

# checks received 117,600   16,800 33,600    168,000

calculate the indirect cost of Signature activity!

Answer 1

Calculation of Activity Allocation Rates

	A	B	C= A/B
Particulars	Estimated Activity Pool	Total Activity of Cost Driver	Activity Allocation Rate
Answering Customer Questions	35,000	14,000	2.5	Per Customer Enquiries
Filling out Loan Application	60,000	120,000	0.5	Per Page
Loan Application Processing	30,000	5,000	6	Per Data Entry Hour
Loan Analysis and Evaluation	100,000	5,000,000	0.02	Per Loan Dollars
Preparation of Loan Checks	28,000	14,000	2	Per Check Prepared
Posting of Loan Payments	42,000	168,000	0.25	Per Check Received
Total	295,000

For Signature Activity

	A	B	C=A*B
Particulars	Activity Allocation Rate	Activity Level for Signature	Total Activity Cost
Answering Customer Questions	2.5	9,800	24,500
Filling out Applications	0.5	30,000	15,000
Loan Application Processing	6	1,250	7,500
Loan Analysis and Preparation	0.02	500,000	10,000
Preparation of Loan Checks	2	9,800	19,600
Posting of Loan Payments	0.25	117,600	29,400
Total			106,000