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 customer, the order is forwarded to Logistics Solutions, whiclh 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, 160,000 items were shipped to customers using 6,500 direct labor-hours. The company incurred a total of $20,800 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 $3.25 per direct labor-hour
Required:
1. What is the standard labor-hours allowed (SH) to ship 160,000 items to customers?
2. What is the standard variable overhead cost allowed (SH x SR) to ship 160,000 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?
(For requirements 3 and 4, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do no round intermediate calculations.)
1. Standard quantity of labor-hours allowed
2. Standard variable overhead cost allowed
3. Variable overhead spending variance
4. Variable overhead rate variance
Variable overhead efficiency variance

Answer 1

1. Standard quantity of labor-hours allowed 4,800

2. Standard variable overhead cost allowed $15,600

3. Variable overhead spending variance 5,200 U

4. Variable overhead rate variance 325 F

5.Variable overhead efficiency variance 5,525 U

Step-by-step explanation:

1. Calculation for Standard quantity of labor-hours allowed

Standard quantity of labor-hours allowed = 160,000*0.03

Standard quantity of labor-hours allowed= 4,800

Therefore Standard quantity of labor-hours allowed is 4,800

2. Calculatuon for Standard variable overhead cost allowed

Standard variable overhead cost allowed= 4,800*$3.25

Standard variable overhead cost allowed = $15,600

Therefore the Standard variable overhead cost allowed is $15,600

3. Calculation for Variable overhead spending variance

Variable overhead spending variance = $15,600 - $20,800

Variable overhead spending variance = 5,200 U

Therefore the Variable overhead spending variance is 5,200 U

4. Calculation for Variable overhead rate variance

Variable overhead rate variance= ($3.25 - $20,800/6,500)*6,500

Variable overhead rate variance=($3.25-$3.2)*6,500

Variable overhead rate variance= 325 F

Therefore The Variable overhead rate variance= 325 F

5. Calculation for Variable overhead efficiency variance

Variable overhead efficiency variance= (4,800-6,500)*3.25

Variable overhead efficiency variance = 1,700*3.25

Variable overhead efficiency variance= 5,525

Therefore the Variable overhead efficiency variance is 5,525 U