Truckee Community Bank uses activity-based costing to assign overhead costs to two different loan products€”student loans and auto loans. The bank identified the following activities, estimated costs for each activity, and identified cost drivers for each activity for this coming year. (These are the first three steps of activity-based costing.)

The following information for the two loan products offered by Truckee Community Bank is for the month of August:

Actual cost driver activity levels for the month of August are as follows:

Required:

a. Using the estimates for the year, compute the predetermined overhead rate for each activity (this is step 4 of the activity-based costing process).

b. Using the activity rates calculated in requirement a and the actual cost driver activity levels shown for August, allocate overhead to the two products for the month of August.

c. For each loan product, calculate the overhead cost per loan approved for the month of August. Round results to the nearest cent.

d. For each loan product, calculate the total cost per loan approved for the month of August. Round results to the nearest cent.

e. Assume you are the manager of the auto loans product line and would like to reduce the amount of overhead costs being applied to your products. Which activity would you focus on first? Why?

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Estimated Annual Overhead Costs Estimated Annual Cost Driver Activity Cost Driver Activity Meeting with customers Reviewing applications Running credit reports Total 20,000 hours 8,000 applications 6,000 credit reports Hours of meeting time Number of applications reviewed Number of credit reports run $ 400,000 420,000 $ 940,000 Student Loans Auto Loans Direct labor cost per loan Overhead cost per loan Total cost per loan Loans approved $150 $250 %2$ 100 loans 300 loans