2:46 ezto.mheducation.com Logistics Solutions provides order fulfillment service

Question

2:46 ezto.mheducation.com Logistics Solutions provides order fulfillment services for dot.com merchants. The company maintains warehouses that stock items carried by its dot.com clents. When a dlent receives an order from a customer, the order is forwanded to Logistics Solutions, which pulls the term from storage. packs and ships it to the customer. The company uses a predetermined variable overhead rate based on direct labor- hours Inthe most recent month?185.000 nems were shoped to customers using 8,000 direct labor-hours. The company nourred a total of $27 600 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 oerhead rate is $3.50 per direct labor-hour According to the standards, what variable overhead cost should have been incurred to fill the orders for the 185.000 tems? How much does this differ rom the actual varable overhead cost? (Round labor-hours per tem and overhead cost per hour to 2 decimal places.) Break down the diflerence computed in (1) above into a variable overhead rate variance and a variable ovehead ciency variance. (Indicate the effect of each variance by selecting F for favorable, "U for unfavorable, and "None" for no offect (i.e., ?ero variance).)

Explanation / Answer

1) Schedule :

Variable overhead rate variance = (3.5*8000-27600) = 400 Favorable

Variable overhead efficiency variance = (7400-8000)*3.5 = 2100 Unfavorable

No of items shipped 185000 Standard hour per item 0.04 Standard hour allowed 7400 Rate per hour 3.5 Total Standard variable overhead cost 25900 Actual Variable overhead cost 27600 Standard cost 25900 Total variance 1700 unfavorable

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