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 hour In the most recent month, 155,000 items were shipped to customers using 6,200 direct labor-hours. The company incurred a total of S19,530 in variable overhead costs According to the company's standards, 0.04 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $3.20 per direct labor-hour. 1. According to the standards, what variable overhead cost should have been incurred to fill the orders for the 155,000 items? How much does this differ from the actual variable overhead cost? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). 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

1) According to standard what variable cost incurred and actual cost ;

2) Break down :

Variable overhead rate variance = (standard rate-actual rate)actual hours

                                            = (3.20*6200-19530)

Variable overhead rate variance = 310 F

Variable overhead efficiency variance = (standard hours-actual hours)standard rate

                                                     = (6200-6200)3.2

Variable overhead efficiency variance = None

No of items shipped 155000 Standard direct labour hours per item 0.04 standard direct labour hours allowed 6200 Standard variable overhead cost per hour 3.20 Total standard variable overhead cost 19840 Actual variable overhead cost incurred 19530 Total standard variable overhead cost 19840 Total variable overhead variance 310 F

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