insuranceadvisory

All loans incur an origination cost and ongoing processing costs. Origination and processing costs include direct costs related to the loan, such as any legal fees and costs relating to the credit appraisal process, and indirect costs such as management and administrative overhead, marketing expenditure and use of shared data-center facilities. The problem of how best to allocate overheads and indirect costs to specific transactions, or even business units, is not unique to banks. There are plenty of books on management accounting that address these issues at great length. For our purposes we will assume these costs are given.