The new manager of the insurance division does not understand how the company can have so many overhead rates for assigning costs to the activities of the company's life insurance underwriters. One rate schedule is used to calculate average assignable costs when agents write standard policies. Another rate schedule is applied when the agents write special policies, and these policies are costed out differently from those categorized as standard policies.
Why might the company use different costing systems, with different overhead rates, for standard and specialized policies?
I have experience working with insurance underwriters, and can give you a perspective on why different costing systems could be used. Standard policies have a pretty straightforward procedure, where there are no medical complications and the client is not requested preferred health status. There is a lot less paperwork required when processing standard policies. For example, a ...