Logistics Solutions provides order fulfillment services for dot.com merchants. T

Question

Logistics Solutions 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 Logistics Solutions, 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, 120,000 items were shipped to customers using 2,300 direct labor-hours. The company incurred a total of $7,360 in variable overhead costs. According to the company's standards, 0.02 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $3.25 per direct labor-hour.
Required:
1. What variable overhead cost should have been incurred to fill the orders for the 120,000 items? How much does this differ from the actual variable overhead cost?

2. Break down the difference computed (1) above into a variable overhead rate variance and a variable overhead efficiency variance.

Please answer in this format...Thanks

Number of items shipped .
Standard direct labor-hours per item .
Total direct labor-hours allowed .
Standard variable overhead cost per hour .
Total standard variable overhead cost .
Actual variable overhead cost incurred .
Total standard variable overhead cost (above) ..
Total variable overhead variance .

Actual Hours of
Input, at the Actual Rate (AHxAR)
???? hours x ?? per hour=$7,360

Actual Hours of Input at the Standard Rate
(AH x SR)
???? hours x $??per hour=$????

Standard Hours Allowed for output at the standard rate
(SH x SR)
??? Hours x ?? per hour=$???

Variable Overhead Rate Variance ???

Variable Overhead Efficiency Variance ???

Total Variance???

$????/ ???? hour

Alternatively, the variances can be computed using the formulas:

Explanation / Answer

No. of items ordered 120000 Direct labor hour required to fulfil one item 0.02 Direct labor hours required to fulfil 120000 items 120000×0.02= 2400hrs standard labor hours required 2400 Variable over head rate is $3.25 per direct labor hour variable over head to fulfil 120000 items 2400×3.25 7800 standard variable cost 7800 standard variable cost 7800 Actual variable cost 7360 Difference 440 Variable over head efficiency variance Actual hours worked-standard hrs worked× variable over head rate 2300-2400×3.25 $325 variable over head efficiency variance 325(unfavourable variable over head cost variance variable over head cost absorbed-variable over head cost incurred variable over head cost absorbed= standard time for actual output×budgeted rate per hour 2400×3.25= 7800 variable over head costs incurred Actual time×Actual rate per hour Actual over head cost incurred( given) 7360 Variable overhead cost variance 440

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