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 cus- tomer, 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, 120,000 items were shipped to customers using 2,300 direct labor-hours. The company incurred a total of $7,360 in variable overhead costs. According to the company's standards, 0.02 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $3.25 per direct labor-hour. Required: 1.What is the standard labor-hours allowed (SH) to ship 120,000 items to customers? 2. What is the standard variable overhead cost allowed (SH X SR) to ship 120.000 items to customers?

Answer 1

The standard labor-hours allowed to ship 120,000 items is 2,400 hours. The standard variable overhead cost allowed for shipping 120,000 items is $7,800.

Step-by-step explanation:

To find the standard labor-hours allowed (SH) to ship 120,000 items to customers, we can follow these steps:

1. We know that the company's standard is 0.02 direct labor-hours per item.
2. Multiply the number of items by the standard labor-hours per item: 120,000 items × 0.02 hours/item = 2,400 standard labor-hours.

The standard labor-hours allowed to ship 120,000 items is 2,400 hours.

To calculate the standard variable overhead cost allowed (SH × SR) to ship 120,000 items, follow these steps:

1. The standard rate (SR) given is $3.25 per direct labor-hour.
2. Multiply the standard labor-hours by the standard rate: 2,400 hours × $3.25/hour = $7,800.

The standard variable overhead cost allowed for shipping 120,000 items is $7,800.