Question

Exercise 10-3 Variable Overhead Variances [LO10-3] 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, 135,000 items were shipped to customers using 5,000 direct labor-hours. The company incurred a total of $14,750 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 $3.00 per direct labor-hour. Required: 1. According to the standards, what variable overhead cost should have been incurred to fill the orders for the 135,000 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

Answer 1

Number of items shipped	135000
Standard direct labour-hours per item	0.04
Total direct labour-hours allowed	5400 (135000 x 0.04)
Standard variable overhead cost per hour	$ 3
Total standard variable overhead cost	$ 16200 (5400 x$ 3)
Actual variable overhead cost incurred	$ 14750
Total standard variable overhead cost	$ 16200
Total variable overhead variance	$ 1450 (Favourable)