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Homework answers / question archive / Logistics Solutions provides order fulfillment services for dot
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, 145,000 items were shipped to customers using 5,600 direct labor-hours. The company incurred a total of $17,080 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 $3.10 per direct labor-hour. Required: 1. According to the standards, what variable overhead cost should have been incurred to fill the orders for the 145,000 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 variance Variable overhead efficiency variance
we will use the data given in question one by one
Number of items shipped | 145,000 | ||||
Standard labor hours per item | 0.04 | ||||
Total direct labor hours allowed | 5,800 hours[145,000*0.04] | ||||
standard variable OH cost per hour | $3.10 | ||||
Total standard variable OH cost | $17,980[$3.10*5800] | ||||
Actual variable oh cost incurred | $17,080 | ||||
Total standard variable OH | $17,980 | ||||
Total variable Overhead variance | $900[$17,980-17,080] | ||||
Favorable | As the actual cost< standard cost the variance is favorable | ||||
Actual cost* actual hours = $17,080
standardrate =$3.10
Variable rate variance= Actual Hours (Standard rate-actual rate)
=[5,600*$3.10]-$17,080
=$280 favorable [as the actual rate< standardrate , the variance is favorable]
Varible efficiency variance = standardrate per hour (standar hour-actual hours)
=$3.10*(5800-5600)
=$620 Favorable [ As the actual rate < standard hours , variance is favorable]