Question

Logistics Solutions provides order fulfillment services for dot merchants. The company maintains warehouses that stock items carried by its dot 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: 1. What is the standard labor-hours allowed (SH) to ship 155,000 items to customers? 2. What is the standard variable overhead cost allowed (SH × SR) to ship 155,000 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?

Answer 1

1. Standard labor-hours allowed (SH) to ship 155,000 items to customers:

155,000 x 0.04 = 6200

Standard labor hours allowed to ship the above mentioned number of items is 6200

2. Standard variable overhead cost allowed: $3 x 6200 = $18600

3. Variable overhead spending variance : $(18600 - 17400) = $1200

4. (a) $ (18600/6000 - 3) 6000 = $600

b) $ (6200 - 6000) 3 = $600