Logistics Solutions provides order fulfillment services for dot.com merchants. T

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, 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, 135,000 items were shipped to customers using 5,000 direct labor-hours. The company incurred a total of $14,750 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 $3.00 per direct labor-hour.

Required:

1. What is the standard labor-hours allowed (SH) to ship 135,000 items to customers?

2. What is the standard variable overhead cost allowed (SH × SR) to ship 135,000 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?

Explanation / Answer

1 Standard labor-hours allowed = 135000*0.04= 5400 2 Standard variable overhead cost = 5400*3= $16200 3 Variable overhead spending variance = 14750-16200= $1420 Favorable 4 variable overhead rate variance = 14750-(5000*3) = $250 favorable Variable overhead efficiency variance = 3*(5000-5400) = $1200 Favorable

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