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, 135.000 items were shipped to customers using 5.000 direct labor-hours. The company incurred a total of dollar 14,750 in variable overhead costs. According to the company's standards, 0.04 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is dollar 3.00 per direct labor-hour.

Explanation / Answer

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Variable overhead rate variance = (3 -2.95) 5000 = $250 F

Variable overhead efficiency variance = (5400 - 5000) 3 = $1200 F

Numbers of items shipped 135000 Standard direct labor hour per item 0.04 Total direct labor hours allowed 5400 Standard variable overhead cost per hour $3 Total Standard variable overhead cost $16200 Actual variable overhead cost incurred $14750 Total Standard variable overhead cost $16200 Total variable overhead variance $1450 F

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