Super Fast Insurance Uses Budgets to Forecast and Monitor Overhead

question 30

Essay

Super Fast Insurance uses budgets to forecast and monitor overhead throughout the organization. The following budget formula relates to the processing of applications for automobile policies in any given month:
Total overhead = $6.80APH + $13,500
where APH = application processing hours
The typical automobile insurance policy has an estimated processing time of 1.5 hours.
During June, management originally anticipated that 320 applications would be processed. Activity was lower than expected, with only 280 applications completed by month-end, and the following costs were incurred: variable overhead, $2,950; fixed overhead, $13,700.
Required:
A. What volume level of applications and processing hours would have been used if Super Fast had constructed a static budget?
B. Construct a flexible budget that shows the expected monthly variable and fixed overhead costs of processing 270, 300, and 330 applications.
C. From a cost perspective, did the company perform better or worse than anticipated in June? Show calculations to support your answer.

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Definitions:

Hostile Competition

A form of rivalry where participants engage in aggressive behaviors and tactics to win or outperform each other.

Rationalization

the process of justifying behaviors or attitudes with logical, plausible reasons, even if these are not the true underlying motivations.

Political Goals

Objectives set by individuals or groups related to governing, influencing policy, or achieving power within a political framework.

Realistic Conflict Theory

A theory suggesting that intergroup conflict and prejudice arise from competition between groups for resources or status.