Question

Logistics Solutions provides order fulfillment services for dot merchants. The company maintains warehouses that stock items carried by its dot 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, 120,000 items were shipped to customers using 2,300 direct labor-hours. The company incurred a total of $7,360 in variable overhead costs. According to the company’s standards, 0.02 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: According to the standards, what variable overhead cost should have been incurred to fill the orders for the 120,000 items? How much does this differ from the actual variable overhead cost? Break down the difference computed in (1) above into a variable overhead rate variance and a variable overhead efficiency variance.

Answer 1

Answer:

Instructios are listed below.

Explanation:

Giving the following information:

The company uses a predetermined variable overhead rate based on direct labor-hours. In the most recent month, 120,000 items were shipped to customers using 2,300 direct labor-hours. The company incurred a total of $7,360 in variable overhead costs. According to the company’s standards, 0.02 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $3.25 per direct labor-hour.

A) Allocated overhead= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated overhead= 3.25*2,300= 7,475

B)Manufacturing overhead rate variance= (standard rate - actual rate)* actual quantity= (3.25 - 3.2)*2,300= $115 favorable

variable overhead efficiency variance= (SQ - AQ)*SR= (2,400 - 2,300)*3.25= $325 favorable