Logistics Solutions provides order fulfilment services for dot.com merchants. Th

Question

Logistics Solutions provides order fulfilment 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 hours. ships it to the customer. The company uses a predetermined variable overhead rate based on direct labor- In the most recent month, 195,000 items were shipped to customers using 8,600 direct labor-hours. The company incurred a total of $30,530 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 $3.60 per direct labor-hour. Required: 1. According to the standards, what variable overhead cost should have been incurred to fill the orders for the 195,000 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 I standard variable overhead cost Total variable overhead variance 0 Favorable

Explanation / Answer

According to standard standard cost actual cost :

2. Break down :

Variable overhed rate variance = (Standard rate-actual rate)actual hours

= (3.60*8600-30530)

Variable overhead rate variance = 430 F

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

= (195000*.04-8600)3.6

Variable overhead efficiency variance = 2880 U

No of items shipped 195000 standard direct labour hour per item 0.04 Total direct labour hours allowed 7800 Standard variable overhead cost per hour 3.60 Total standard cost 28080 total actual cost 30530 Total standard cost 28080 Total Variable overhead Variance 2450 Unfavourable

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