Logistics solutions provides order fulfillment services for dotcom merchants The

Question

Logistics solutions provides order fulfillment services for dotcom merchants The company maintain?,warehouses that stock items earned by its dotcom clients When a client receives an order from.1 customer the order is forwarded to Logistics Solutions, which pulls the item from storage, packs it and ships it to the customei The company uses a predetermined variable overhead rate based on direct laber hours In the most recent month 120,000 items were shipped to customers using 2,300 direct laber hours The company incurred a total of $7,360 in variable overhead costs Accordfag to the company's standards, 0 02 direct laber-hours are required to fulfill an order for one jle^n and the variable overhead rate is $3 25 per direct laber-hour Required: 1 According to the standards what variable overhead cost should have been incurred to fill the orders for the COO items? How much does this differ from the actual variable overhead cost? (Indicate the effect of each variance by selecting

Explanation / Answer

SRSH                                                     SRAH                                                   ARAH

2400 x 3.25                                                                                                       7360

= 7800

SH = 0.02 x 120,000 =2,400

SR = Standard overhead Rate per hr =$3.25

SH= Standard hrs required for actual production=0.20 x 120,000=2,400 hrs

AH =Actual hrs =2,300 hrs

Overhead Cost variance =SRSH – ARAH = 7800 – 7360 = 440

Number of items shipped = 120,000 items

Standard direct labor hours per item =0.02 hrs.

Total direct labor hours allowed = 0.02 x 120,000 = 2,400 hrs

Standard variable overhead cost per hour = $ 3.25

Total standard variable overhead cost =2400 x 3.25 = $7,800

Actual variable overhead cost incurred = $7,360

Total variable Overhead variance = $440 F

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2.

Variable overhead rate variance= SRAH-ARAH

                                                            =$7,475-$7,360

                                                             =$115 F

Variable Overhead effeciancy variance= SRSH- SRAH

                                                                     =$7,800-$7,475

                                                                     =$325 F

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