Question

EXERCISE 10-3 Variable Overhead Variances LO10-3 Logistics Solutions provides order fulfillment services for dot.com merchants. The company main- tains 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, 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 X 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?

Answer 1

ANSWER

As per the given question,

Standard Quantity of labor allowed = 120,000 * 0.02 = 2400
Standard variable oh cost allowed = 2400 * 3.25 = 7800
Voh spending variance = 7800 - 7360 = 440 Favourable
Voh rate variance = (SR-AR) * AH = (3.25 - 7360/2300) * 2300 = 115 Favourable
Voh efficiency variance = (SH-AH) *SR = (2400 - 2300)*3.25 = 325 Favourable

Thank you for the question.....kindly rate..it helps me a lot