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, 185,000 items were shipped to customers using 8,000 direct labor-hours. The company incurred a total of $27600 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 $3.50 per direct labor-hour.

Required:
a. What is the standard labor-hours allowed (SH) to ship 185,000 items to customers?
b. What is the standard variable overhead cost allowed (SH SR) to ship 185,000 items to customers?
c. What is the variable overhead spending variance?
d. What is the variable overhead rate variance and the variable overhead efficiency variance?

Answer 1

Standard labor-hours allowed= 7,400 direct labor Hours.

The standard variable overhead cost= $ 25,900

Variable overhead spending variance =$400

Variable overhead rate variance =$400

Variable overhead efficiency variance=$2,100

Step-by-step explanation

a.) The standard labor-hours allowed (SH) to ship 185,000 items to customers

= 0.04 direct labor-hours x 185,000= 7,400 direct labor Hours.

b). The standard variable overhead cost allowed to ship 185,000 items to customers=

standard labor-hours SH × Standard Rate SR

7400 X $3.50= $ 25,900

c). Variable overhead spending variance is calculated as

Actual Overhead Costs - Actual hours x Standard Rate

= $27600 - 8,000 x 3.50 = $27600 -28,000

=$400

d1). Variable overhead rate variance =

Actual hours x Actual Variable Overhead Rate per Hour - Actual hours Standard Variable Overhead Rate per Hour

Variable overhead rate variance =8000 x (27600/8000) - 8000 x 3.50

8000 x 3.45 - 8000 x 3.50

27,600-28,000=$400

d2) Variable overhead efficiency variance= Actual Hours x Standard Rate - Standard Hours x Standard Rate

8000 x 3.50 -7400 x 3.50

28,000 -25,900

=$2,100