Exercise 8-6 Variable Overhead Variances [LO6] Order Up, Inc., provides order fu

Question

Exercise 8-6 Variable Overhead Variances [LO6]

Order Up, Inc., 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 Order Up, 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, 130,000 items were shipped to customers using 5,100 direct labor-hours. The company incurred a total of $13,515 in variable overhead costs.

     According to the company

Order Up, Inc., 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 Order Up, 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.

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part 1A:

Total Standard Variable Overhead Cost = 130000*.04*2.70 = 14040

Part 1B:

Spending Variance = Actual Variable Overhead Cost - Standard Variable Overhead Cost = 13515 - 14040 = 525 (Favorable)

Part 2:

Variable overhead efficiency variance = Standard Variable Overhead Rate*(Actual Hours - Standard Hours) = 2.70*(5100 - 130000*.04) = 270 (Favorable)

Variable overhead rate variance = Actual Hours*(Actual Variable Overhead Rate - Standard Variable Overhead Rate) = 5100*(13515/5100 - 2.70) = 255 (Favorable)

Thanks.

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