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, 190,000 items were shipped to customers using 8,300 direct labor-hours. The company incurred a total of $29,050 in variable overhead costs. According to the company’s standards, 0.03 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $3.55 per direct labor-hour. Required: 1. What is the standard labor-hours allowed (SH) to ship 190,000 items to customers? 2. What is the standard variable overhead cost allowed (SH × SR) to ship 190,000 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 hour allowed 5,700 Hour

2. Standard variable overhead cost allowed $20,235

3. Variable overhead spending variance 8,815 U

4. Variable overhead rate variance 415 F

Variable overhead efficiency variance 9230 U

Step-by-step explanation:

1. Calculation to determine the standard labor-hours allowed

Standard labor hour allowed = 190,000*.03

Standard labor hour allowed= 5,700 Hour

Therefore the Standard labor hour allowed is 5,700 Hour

2. Calculation to determine the standard variable overhead cost allowed

Using this formula

Standard variable overhead cost allowed=Standard quantity of labour hours allowed*Standard variable overhead rate

Let plug in the formula

Standard variable overhead cost allowed = 5,700*3.55

Standard variable overhead cost allowed = $20,235

Therefore the Standard variable overhead cost allowed is $20,235

3. Calculation to determine the variable overhead spending variance using this formula

Variable Overhead Spending Variance=Standard Cost- Actual Cost

Let plug in the formula

Variable overhead spending variance = 20,235-29,050

Variable overhead spending variance = 8,815 U

Therefore the Variable overhead spending variance is 8,815 U

4. Calculation to determine the variable overhead rate variance

Using this is formula

Variable overhead rate variance

=(Standard Rate*Actual Hour)-Actual cost

Let plug in the formula

Variable overhead rate variance = (3.55*8300-29050)

Variable overhead rate variance= 415 F

Therefore the variable overhead rate variance is 415 F

Calculation to determine variable overhead efficiency variance

Using this formula

Variable Overhead Efficiency Variance=

(Standard Hours - Actual Hours ) x Standard Rate

Let plug in the formula

Variable overhead efficiency variance = (5700-8300)*3.55

Variable overhead efficiency variance = 9230 U

Therefore the Variable overhead efficiency variance is 9230 U