Question
Question 2: Standard Costing (20 marks in total) Good Health Insurance Company uses a flexible overhead budget for its new policy department. The firm offers
Question 2: Standard Costing (20 marks in total) Good Health Insurance Company uses a flexible overhead budget for its new policy department. The firm offers five types of policy, with the following standard hours allowed for policy clerical processing: Health 1 hour Life 1.5 hours Automobile 2 hours Renter 2 hours Homeowner 5 hours The following numbers of insurance applications were processed during April: Health 375 Life 300 Automobile 150 Renter 600 Homeowner 300 The accountant estimates that the variable overhead rate in the application processing department is $10 per hour, and the fixed overhead costs will amount to $6,000 per month. Required: Calculate the number of standard clerical hours allowed in April, given the number of applications processed. Explain why the company's flexible budget should be based on the number of clerical hours allowed rather than on the number of applications processed. Using Excel, construct a formula flexible overhead budget for the company, and calculate the flexible budget for total overhead cost in April. Include both the formula view and results view of your spreadsheet in your Word document. Prepare a short memorandum to the management of Good Health evaluating the benefits that standard costing systems can offer a business.
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