Order Up, Inc., provides order fulfillment services for dot.com merchants. The c

Question

Order Up, Inc., provides order fulfillment services for dot.com merchants. The company maintains warehouses that stock items carried by its dot.com clients. When a client receives an order from a customer, the order is forwarded to Order Up, which pulls the item from storage, packs it, and ships it to the customer. The company uses a predetermined variable overhead rate based on direct labor-hours.

     In the most recent month, 130,000 items were shipped to customers using 6,400 direct labor-hours. The company incurred a total of $17,600 in variable overhead costs.

     According to the company

Explanation / Answer

Hi,

Please find the answers as follows:

1 a) = 130000*.05*2.8 = 18200

1 b) = 17600 - 18200 = 600 (F)

2)

Variable overhead rate variance = 6400*(2.75 - 2.80) = 320 (F)

Variable overhead efficiency variance = 2.8*(6400 - 6500) = 280 (F)

Thanks.

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