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, 170,000 items were shipped to customers using 7,100 direct labor-hours. The company incurred a total of $23,430 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 $3.35 per direct labor-hour Required: 1. According to the standards, what variable overhead cost should have been incurred to fill the orders for the 170,000 items? How much does this differ from the actual variable overhead cost? (Round labor- hours per item and overhead cost per hour to 2 decimal places.) Number of items shipped Standard direct labor-hours per item Total direct labor-hours allowed Standard variable overhead cost per hour Total standard variable overhead cost Actual variable overhead cost incurred Total standard variable overhead cost Total variable overhead variance 2. Break down the difference computed in (1) above into a variable overhead rate variance and a variable overhead efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) Variable overhead rate variance Variable overhead efficiency variance

Explanation / Answer

Req 1: Number of items shipped 170,000 Std Labour hours per unit 0.03 Total DLH allowed 5100 Std variable OH cost per hour 3.35 Total Std variable OH cost 17085 Actual variable OH incurred 23430 Total Std Variable OH cost 17085 Total Variable Overheads cost Variance 6345 Unfav Req 2: Variable OH rate variance: Actual Hours*Std OH rate per hour - actual variable OH incurred 7100 *3.35   - 23430 = $ 355 Fav Variable OH Efficiency variance: Std rate per hour (Std hours-Actual Hours) 3.35 (5100-7100)= $ 6700 Unfav Variable OH rate variance 355 Fav Variable OH Efficiency Variance 6345 Unfav

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