Chap 10 Q2 Logistics Solutions provides order fulfillment services for dot.com m

Question

Chap 10 Q2

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, 200,000 items were shipped to customers using 8,900 direct labor-hours. The company incurred a total of $32,040 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 $3.65 per direct labor-hour.

According to the standards, what variable overhead cost should have been incurred to fill the orders for the 200,000 items? How much does this differ from the actual variable overhead cost? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round labor-hours per item and overhead cost per hour to 2 decimal places.)

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.

Explanation / Answer

Logistics solution provider       1 Details Amt $ No of Items shipped            200,000 Std direct labor hour per item per order                 0.03 Total std Direct Labor hour allowed               6,000 Standard labor cost per hour $             3.65 Total Std Direct Labor cost =6000*3.65=            21,900 Actual Labor cost Incurred            32,040 Total Direct Labor Variance =            10,140 Unfavorable Actual Labor Hrs Actual labor cost Actual Labor rate       2 Actual Labor cost details               8,900              32,040                   3.60 Direct Labor Rate Variance= Actual Hrs Used( Actual Rate-Std Rate) =8900*(3.60-3.65)                  445 (F) Direct LAbor Efficiency Variance =Std Rate ( Actual Hrs used-Std Hrs for actual output)   3.65*(8900-6000)            10,585 (U) Total Direct LAbor spending Variance= =445-10585=            10,140 (U)

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