EXERCISE 11-4 Variable Overhead Variances [LO4] Logistics Solutions provides ord

Question

EXERCISE 11-4 Variable Overhead Variances [LO4] Logistics Solutions provides order fulfillment services for dot.com merchants. The company main- tains 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, 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 According to the company's standards. 0.02 direct labor-hours are required to fulfill an order hours. The company incurred a total of $7.360 in variable overhead costs. for one item and the variable overhead rate is $3.25 per direct labor-hour

Explanation / Answer

Solution:

actual hours (AH)= 2,300

Actual rate(AR) = $7,360/ 2,300 = $3.20

Standard hours (SH)= 120,000 x 0.02 = 2,400

Standard rate (SR)= $3.25

A) variable overhead rate variance=

AH xAR - AH x SR

= 2,300 x 3.2 - 2,300 x 3.25

= -$115

B) variable overhead efficiency variance =

AH x SR - SH x SR

= 2,300 x 3.25 - 2,400 x 3.25

= - $325

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