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. What is the standard labor-hours allowed (SH) to ship 170,000 items to customers? 2. What is the standard variable overhead cost allowed (SH × SR) to ship 170,000 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) Number of items shipped (a) 170,000 Standard direct labor hours per item (b) 0.03 Total direct labor hours allowed c= (a*b) 5100 hours 2) Total direct labor hours allowed (c ) 5100 hours Standard variable overhead cost per hour (d) $3.35 Total standared variable overhead cost e = (c*d) $17,085 3) Variable overhead spending variance =Actual hours worked * (Actual overhead rate - standard overhead rate)                        = ( $3.30 - $3.35) 7100                       = $355 ( F) 4) Variable overhead rate variance Actual rate = $23,430/ 7100 = $3.3 Rate variance = ( actual rate - std rate ) * actaul hrs                        = ( $3.30 - $3.35) 7100                       = $355 ( F) Efficiency varaiance = ( std hrs - actual hrs ) std rate = ( 5100 - 7100 ) $3.35 = 6700 ( U)

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