Logistics Solutions provides order fulfilment services for dot.com merchants. Th

Question

Logistics Solutions provides order fulfilment services for dot.com merchants. The company maintains warehouses that stock items earned 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, 145.000 items were shipped to customers using 5.600 direct labor-hours. The company incurred a total of $17,080 In variable overhead costs. According to the company's standards. 0.04 direct labor-hours are required to fulfil an order for one item and the variable overhead rate is $3.10 per direct labor-hour. Required: 1. According to the standards, what variable overhead cost should have been incurred to fill the orders for the 145.000 items? How much does this differ from the actual variable overhead cost? Break down difference computed in (1) above into a Variable overhead rate variance Variable overhead efficiency variance.

Explanation / Answer

actual hours 5600 total items shipped 145000 standar rate per hour 0.04 standard labour hours 5800 standard labour hour rate 3.1 total standard variable overhead cost 17980 Actual variable cost 17080 Variance 900 Favorable Variable overhead rate variance actual hours * (standard rate - actual rate) 5600 0.05 280 Variable overhead efficiency variance Standard overhead rate x ( standard hours - Actual hours ) 3.1 200 620 total variable overhead variance 900

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