Logistics Solutions provides order fulfillment services for dot.com merchants. T
ID: 2576319 • 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 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, 155,000 items were shipped to customers using 6,000 direct labor-hours. The company incurred a total of $17,400 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 $3.00 per direct labor-hour Required . 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? (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 varianceExplanation / Answer
1.
No of item shipped
155,000
x Standard direct labor-hours per item
0.04
Total labor-hours allowed
6200
x Standard variable overhead cost per hour
$3
Total standard variable overhead cost
$18,600
Actual variable overhead cost incurred
$17,400
-Total standard variable overhead cost
$18,600
Total variable overhead variance
($1,200)
F
2.
Variable overhead rate variance
($600)
F
Variable overhead efficiency variance
($600)
F
Explanation:
Actual variable overhead rate = Actual variable overhead cost /actual total labor hours
= $17,400/6,000 = $ 2.9
Variable overhead rate variance = (Actual variable overhead rate – Standard variable overhead rate) x Actual units of allocation base
= ($ 2.9 – 3) x 6,000 = - $ 0.1 x 6,000 = - $ 600 F
Standard hours allowed = No. of units x Standard hours per units = 155,000 x 0.04 = 6200 hours
Variable overhead efficiency variance = (Actual hours – Standard hours) x Standard rate
= (6,000 – 6,200) x $ 3 = - 200 x $ 3 = - $ 600 F
No of item shipped
155,000
x Standard direct labor-hours per item
0.04
Total labor-hours allowed
6200
x Standard variable overhead cost per hour
$3
Total standard variable overhead cost
$18,600
Actual variable overhead cost incurred
$17,400
-Total standard variable overhead cost
$18,600
Total variable overhead variance
($1,200)
F
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