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, 195,000 items were shipped to customers using 8,600 direct labor-hours. The company incurred a total of $30,530 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 $3.60 per direct labor-hour. Required: 1. According to the standards, what variable overhead cost should have been incurred to fill the orders for the 195,000 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.) Number of items shipped Standard direct labor-hours per item Total direct labor-hours allowed Standard variable overhead cost per hour Total standard variable overhead cost Actual variable overhead cost incurred Total standard variable overhead cost Total variable overhead variance

Explanation / Answer

VOH Basis DLH Actual Data: Shipments 195000 DLH 8600 Cost Incurred 30530 Actual Rate PH 3.55 (30530/8600) Standard Data: Standard Time 0.04 DLH Standard OH Rate 3.60 Per DLH 1 Number of item Shipped 195000 Standard DLH per Item 0.04 Total DLH Allowed 7800 (195000*0.04) Standard VOH Cost PH 3.60 Total Standard VOH Cost 28080 (7899*3.60) Actual Variable OH Cost Incurred 30530 Total Standard VOH Cost 28080 Total Variable OH Variance -2450 Unfavourable 2 Variable OH Price Variance: (Standard Price-Actual Price)Actual Hours (3.60-3.55)*8600 430 Favourable Variable OH Efficency Variance: (Standard Hours-Actual Hours)Standard Price (7800-8600)3.60 -2880 Unfavourable -2450 Unfavourable (430-2880)

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