Question

g 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, 110,000 items were shipped to customers using 3,500 direct labor-hours. The company incurred a total of $9,450 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 $2.75 per direct labor-hour. Required: 1. What is the standard labor-hours allowed (SH) to ship 110,000 items to customers? 2. What is the standard variable overhead cost allowed (SH × SR) to ship 110,000 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. What is the standard labor-hours allowed (SH) to ship 110,000 items to customers?

• standard labor hours for 110,000 items = 0.03 direct labor hours x 110,000 = 3,300 direct labor hours

2. What is the standard variable overhead cost allowed (SH × SR) to ship 110,000 items to customers?

• standard variable overhead cost for 110,000 items = 3,300 direct labor hours x $2.75 = $9,075

3. What is the variable overhead spending variance?

• variable overhead spending variance = actual overhead expenses - (actual hours x standard rate) = $9,450 - (3,500 x $2.75) = -$175 favorable

4. What is the variable overhead rate variance and the variable overhead efficiency variance?

• variable overhead rate variance = (actual variable overhead rate - standard overhead rate) x actual hours = ($2.70 - $2.75) x 3,500 = -$175 favorable
• variable overhead efficiency variance = /actual labor hours - standard labor hours) x standard overhead rate = (3,500 - 3,300) x $2.75 = $550 unfavorable