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: 1. What is the standard labor-hours allowed (SH) to ship 120,000 items to customers? 2. What is the standard variable overhead cost allowed (SH × SR) to ship 120,000 items to customers? 3. What is the variable overhead spending variance? 4. What is the variable overhead rate variance and the variable overhead efficiency variance?

1.  The standard labor-hours allowed (SH) 2400 direct labor Hours.

2. The standard variable overhead cost  $ 7800

3.  Variable overhead spending variance 115 fav

4. Variable overhead rate variance 115 fav

4. Variable overhead efficiency variance 95 Fav

Explanation:

1.  The standard labor-hours allowed (SH) to ship 120,000 items to customers

= 0.02 * 120,000= 2400 direct labor Hours.

2. The standard variable overhead cost allowed (SH × SR) to ship 120,000 items to customers=  2400 * $3.25= $ 7800

3.  Variable overhead spending variance= Actual Overhead Costs - AH* SR

        =7360- 2300 *3.25= 7360- 7475= 115 fav

4. Variable overhead rate variance =AH*Actual Variable Overhead Rate per Hour - AH* Standard Variable Overhead Rate per Hour

Variable overhead rate variance =2300* (7360/2300) - 2300* 3.25

Variable overhead rate variance =2300* 3.2 - 2300* 3.25

Variable overhead rate variance =7360-7475=115 fav

4. Variable overhead efficiency variance= AH* SR- SH*SR

       = 7705- 7800= 95 Fav

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