Order Up, Inc., provides order fulfillment services for dot.com merchants. The c

Question

Order Up, Inc., 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 Order Up, 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, 155,000 items were shipped to customers using 6,200 direct labor-hours. The company incurred a total of $19,530 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 $3.20 per direct labor-hour.

According to the standards, what variable overhead cost should have been incurred to fill the orders for the 155,000 items? How much does this differ from the actual variable overhead cost?

Number of items shipped155,000Standard direct labor-hours per item0.04Total direct labor-hours allowed6,200Standard variable overhead cost per hour$3.20Total standard variable overhead cost$19,840Actual variable overhead cost incurred$19,530Standard variable overhead cost19,840Spending variance—Unfavorable$(310)

Break down the difference computed in (1) above into a variable overhead rate variance and a variable overhead efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Need help with #2 only!

Order Up, Inc., 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 Order Up, 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.

Explanation / Answer

SRSH                                                      SRAH                                                     ARAH

=3.20 x 6,200                                      =3.20 x 6,200                                      3.15 x 6,200

=$19,840                                              =$19,840                                              =$19,530

SR= Standard variable overhead rate per labor hr=$3.20
SH= Standard Hrs Required for Actual production= 0.04 x 155,000=6,200 hrs

AH= Actual hrs worked= 6,200 hrs

ARAH= Actual labor cost =$19,530

AR=Actual rate per hr= ARAH/ AH=$19,530/6,200=$3.15

Number of items shipped                                155,000

Standard direct labor-hours per item                0.04

Total direct labor-hours allowed                      6,200 hrs
Standard variable overhead cost per hour        $3.20

Total standard variable overhead cost              $19,840

Actual variable overhead cost incurred                        $19,530

Standard variable overhead cost                      $19,840

Spending variance—Unfavorable                    $(310)

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