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, 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? (For requirements 3 and 4, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.) Standard quantity of labor- hours allowed Standard variable overhead cost allowed Variable overhead spending variance 4.Variable overhead rate variance Variable overhead efficiency variance

Answer 1

Summary of Answer
Standard labor hours allowed (SH)	2,400
Standard variable overhead cost allowed	$       7,800
Variable overhead spending variance	$          440	Favorable
Variable overhead rate variance	$          115	Favorable
Variable overhead efficiency variance	$          325	Favorable

Calculation

	Minus sign indicate Favorable variance.
	Measure	Hour
	Standard variable overhead rate per Hour	$                3.25
7360/2300	Actual variable overhead rate per Hour	$                3.20
120000*0.02	Standard labor hours allowed	2400
	Actual labor hours	2300
	Actual variable overhead rate per Hour	3.20
Less	Standard variable overhead rate per Hour	-3.25
	Difference	-0.05
Multiply	Actual labor hours	2300
	Variable overhead rate variance	$               (115)
	Indicate	Favorable
	Actual labor hours	2300
Less	Standard labor hours allowed	-2400
	Difference	-100
Multiply	Standard variable overhead rate per Hour	3.25
	Variable overhead efficiency variance	$               (325)
	Indicate	Favorable
	Variable overhead spending variance (Total of both variance)	$               (440)
	Indicate	Favorable
Alternative method
	Actual variable overhead cost	$              7,360
Less:	Standard variable overhead cost allowed (SH x SR = 2400 x 3.25)	$              7,800
	Variable overhead spending variance	$               (440)
	Indicate	Favorable