Logistics Solutions provides order fulfillment services for dotcom merchants The

Question

Logistics Solutions provides order fulfillment services for dotcom merchants The company maintains warehouses that stock items earned by its dotcom clients Whert a client recerves an order from a customer the order is forwarded to Logistics Solutions, which pulls the item from storage, packs t and ships it to the customer The company uses a predetermined variable overhead rate based on dwed labor-hours. In the most recent month. 120.000 Hems were shipped to customers using 2.300 direct labor-hours The company inclined a total of $7,360 m variable overhead costs According to the company's standards. 0 02 direct labor hours are requied to fulfil an order for one tiem and the variable overhead rate is S3.25 per direct labor hour. Required: 1 According to the standards what variable overhead cost should have been incurred to M the orders tor the 120.000 items? How much does this differ from the actual variable overhead cost? 2 Break down the (Mforonco computed in (1) above into a variable overhead rate variance and a varoble overhead efficiency variance.

Explanation / Answer

No. of items shipped 120,000 Standard direct labour hour per item 0.02 Total direct labourhours allowed 2,400 Standard variable overhead cost per hour 3.25 Total standard variable overhead cost 7,800 Actual variable overhead cost incurred 7,360 Total standard variable overhead cost 7,800 Total Variable overhead Variance 440

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