Question

Rock Solid Insurance Company uses a flexible overhead budget for its application-processing department. The firm offers five types of policies, with the following standard hours allowed for clerical processing.
Automobile........................................................................ 1 hour
Renter’s............................................................................. 1.5 hours
Homeowner’s.................................................................... 2 hours
Health................................................................................ 2 hours
Life.................................................................................... 5 hours
The following numbers of insurance applications were processed during May.
Automobile........................................................................ 375
Renter’s.............................................................................. 300
Homeowner’s..................................................................... 150
Health................................................................................. 600
Life........................................................................................ 300
The controller estimates that the variable-overhead rate in the application-processing department is $5.00 per hour, and that fixed-overhead costs will amount to $3,000 per month.

Required:
1. How many standard clerical hours are allowed in May, given actual application activity?
2. Why would it not be sensible to base the company’s flexible budget on the number of applications processed instead of the number of clerical hours allowed?
3. Construct a formula flexible-overhead budget for the company.
4. What is the flexible budget for total overhead cost in May?



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  • CreatedApril 22, 2014
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