Logistics Solutions provides order fulfillment services for dot.com merchants. T
ID: 2468956 • Letter: L
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, 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. According to the standards, what variable overhead cost should have been incurred to fill the orders for the 160,000 items? How much does this differ from the actual variable overhead cost? (Round labor-hours per item and overhead cost per hour to 2 decimal places.) 2. Break down the difference computed in (1) above into a variable overhead rate variance and a variable overhead efficiency variance.Explanation / Answer
Statement showing computations Particulars Amount No of items Shipped 160,000.00 Standard Labour hour per item 0.03 Total DL hours allowed 4,800.00 Standard VC coct per hour 3.25 Total Standard VO cost 15,600.00 ActualVariable overhead Cost 20,800.00 Total Standard VO cost 15,600.00 Total VO variance 5,200 U Particulars Standard Actual Hours Rate amount Hours Rate amount Variable Overhead 4,800.00 3.25 15,600.00 6,500.00 3.2000 20,800.00 VORV = (SR-AR)AH VORV = (3.25 - 3.20)6,500 VORV = 325 F VOEV = (SH-AH)SR VOEV = (4,800 - 6,500)3.25 VOEV = 5,525 U `
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