Logistics Solutions provides order fulfillment services for dot.com merchants. T
ID: 2544798 • Letter: L
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 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 4,700 direct labor-hours. The company incurred a total of $13,630 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 $2.95 per direct labor-hour. Required: 1. According to the standards, what variable overhead cost should have been incurred to fill the orders for the 130,000 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$2.95 Total standard variable overhead cost Actual variable overhead cost incurred Total standard variable overhead cost Total variable overhead variance 130,000 0.03 3,900 $11,505 11,505 $ 11,505Explanation / Answer
PART-1)
Number of items shipped
130,000
Standard direct labor hours per item
0.03
Total direct labor-houres allowed
3,900
Standard variable overhead cost per hour
2.95
Total Standard variable overhead cost
11,505
Actual variable overhead cost incurred
13,630
Total Standard variable overhead cost
11,505
Total variable overhead cost
2,125
Unfavorable
Part-2
Variable overhead rate variance
235
Favorable
Variable overhead efficiency variance
2,360
Unfavorable
Working:
Variable overhead rate variance = AH(AR – SR)
= 4,700 hours ($2.90 per hour – $2.95 per hour)
= $235 F
Variable overhead efficiency variance = SR(AH – SH)
= $2.95 per hour (4,700 hours – 3,900 hours)
= $2,360 U
PART-1)
Number of items shipped
130,000
Standard direct labor hours per item
0.03
Total direct labor-houres allowed
3,900
Standard variable overhead cost per hour
2.95
Total Standard variable overhead cost
11,505
Actual variable overhead cost incurred
13,630
Total Standard variable overhead cost
11,505
Total variable overhead cost
2,125
Unfavorable
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