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, 150,000 items were shipped to customers using 5,900 direct labor-hours. The company incurred a total of $18,290 in variable overhead costs.

According to the company’s standards, 0.03 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $3.15 per direct labor-hour.

Required:

1. What is the standard labor-hours allowed (SH) to ship 150,000 items to customers?

2. What is the standard variable overhead cost allowed (SH × SR) to ship 150,000 items to customers?

3. What is the variable overhead spending variance?

4. What is the variable overhead rate variance and the variable overhead efficiency variance?

Explanation / Answer

1. Standard labor hours allowed = 150000*.03 = 4500 hours

2. Std variable overhead cost allowed = 4500*3.15 =$14175

3. Variable overhead spending variance= (18290-14175) =$4115 Adverse

4. Variable overhead rate variance = (3.15-3.1)*5900 = 295F

Variable overhead efficiency variance = (5900-4500)*3.15 = $4410 Adverse

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