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Gibralter Insurance Company uses a flexible overhead budget for its application-processing department. The firm offers five types of policies, with the following standard hours
Gibralter 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 Renter's Homeowner's Health Life 1 hour 1 hour 2 hours 2 hours 5 hours The following numbers of insurance applications were processed during July. Automobile 310 Renter's 260 Homeowner's 160 Health Life 460 260 The controller estimates that the variable-overhead rate in the application-processing department is $3.00 per clerical hour, and that fixed-overhead costs will amount to $2,600 per month. Required: 1. How many standard clerical hours are allowed in July, 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 July? Required 1 Required 2 Required 3 Required 4 How many standard clerical hours are allowed in July, given actual application activity? Standard Policy Type Hours Allowed Automobile Renter's Homeowner's Health Life Total Total budgeted monthly overhead cost Budgeted variable overhead cost per clerical hours x Total clerical hours x clerical hours + Bugeted fixed overhead cost per month Total budgeted overhead cost
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