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, 165,000 items were shipped to customers using 6,800 direct labor-hours. The company incurred a total of $22,100 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 $3.30 per direct labor-hour. Required 1. What is the standard labor-hours allowed (SH) to ship 165,000 items to customers? 2. what is the standard variable overhead cost allowed (SH × SR) to ship 165,000 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? (For requirements 3 and 4, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do no round intermediate calculations.)

Explanation / Answer

Solution:

1) Standard quantity of labor hours allowed = 165,000 Items x 0.04 DLH per unit = 6,600 direct labor hours

2) Standard variable overhead cost allowed = 6600 x $3.30 per direct labor hour = $21,780

3) Variable Overhead Spending Variance = Variable Overhead Rate Variance 340 F + Efficiency Variance 600 U = $260 Unfavorable

4)

Variable Overhead Rate Variance

Actual Hourly Variable Overhead Rate ($22,100 / 6800)

3.25

Per DLH

Standard Hourly Variable Overhead Rate (SV)

3.30

Per DLH

Variance or Difference in Rate (AV - SV)

0.05

Per DLH

x Actual Labor Hours

6800

hours

Variable Overhead Rate Variance

$340

Favorable

Variable Overhead Efficiency Variance

Standard Hours Allowed for actual production:

Actual Production

165,000

Items

x Allowed Standard Hours Per Unit

0.04

hours

Total Standard Hours Allowed for actual production (SHAP)

6600

hours

Actual Labor Hours Worked (AH)

6800

Hours

Variance or Difference in Hours (AH - SHAP)

200

hours

x Standard Hourly Variable Overhead Rate

$3

per hour

Variable Overhead Efficiency Variance

$660

Unfavorable

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Variable Overhead Rate Variance

Actual Hourly Variable Overhead Rate ($22,100 / 6800)

3.25

Per DLH

Standard Hourly Variable Overhead Rate (SV)

3.30

Per DLH

Variance or Difference in Rate (AV - SV)

0.05

Per DLH

x Actual Labor Hours

6800

hours

Variable Overhead Rate Variance

$340

Favorable

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