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chapter 10 solutions

chapter 10 solutions - CHAPTER 10 Standard Costing and...

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CHAPTER 10 Standard Costing and Flexible Budgeting 10-46 (20 MINUTES) 1. Policy Type Standard Hours per Application Actual Activity Standard Hours Allowed Automobile ........................................ 1 375 375 Renter's ............................................. 1.5 300 450 Homeowner's ................................... 2 150 300 Health ................................................. 2 600 1,200 Life ...................................................... 5 300 1,500 Total ................................................... 3,825 2. The different types of applications require different amounts of clerical time, and variable overhead cost is related to the use of clerical time. Therefore, basing the flexible budget on the number of applications would give a misleading estimate of overhead costs. For example, processing 100 life insurance applications will entail much more overhead cost than processing 100 automobile insurance applications. 3. Formula flexible budget: Total budgeted monthly overhead cost = × hours clerical total hour clerical per cost overhead variable budgeted + budgeted fixed- overhead cost per month Total budgeted monthly overhead cost = ($5.00 × X) + $3,000 where X denotes total clerical time in hours. 4. Budgeted overhead cost for May = ($5.00 × 3,825) + $3,000 = $22,125
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