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Flexible budget

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Gibraler Insurance Company uses a flexible overhead budget for its application-processing department. The film offers five types of policies, with the following standard hours allowed for clerical processing.
Automobile.........1hr
Renter's...........1hr
Homeowner's........2 hr
Health.............2 hr
Life...............5 hr

The following numbers of insurance applications were processed during July.
Automobile............. 250
Renter's............... 200
Homeowner's............ 100
Health................. 400
Life................... 200
The controller estimates that the variable-overhead rate in the application-processing department is $4.00 per hour, and that fixed-overhead costs will amount to $2,000 per month.

1. How many standard clerical hours are allowed in July, give 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?

Solution Preview

1. How many standard clerical hours are allowed in July, give actual application activity?

Standard hours allowed = Number of application X standard hour per application
We calculate the standard hours allowed for each department
Automobile = 250 applications X 1 hr per application = 250 standard hours
Renter = 200X1 = 200 standard hours
Homeowner = ...

Solution Summary

The solution explains some calculations relating to flexible budget.

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