Question

wraUOr elficiency variance? EXERCISE 9-6 Variable Overhead Variances LO9-6 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 cus- tomer, 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 What is the standard labor-hours allowed (SH) to ship 120,000 items to customers? What is the standard variable overhead cost allowed (SH x SR) to ship 120,000 items to customers? What is the variable overhead spending variance? 4. What is the variable overhead rate variance and the variable overhead efficiency variance? VERCISE 9-7 Planning Budget LO9-1 utomatic car wash facility near

Answer 1

1.

Standard labor hours allowed = Number of items * Direct labor hours required

Standard labor hours allowed = 120000 * 0.02

Standard labor hours allowed = 2400 hours

2.

Standard variable overhead cost allowed = standard hours * standard rate

Standard variable overhead cost allowed = 2400 * 3.25

Standard variable overhead cost allowed = $ 7800

3.

Variable overhead spending variance = Standard variable overhead cost - actual variable overhead

Variable overhead spending variance = 7800 - 7360

Variable overhead spending variance = $ 440 F

4.

Variable overhead rate variance = (Standard rate - Actual rate) * Actual hours

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

Variable overhead rate variance = 3.25 - 3.20) * 2300

Variable overhead rate variance = $ 115 F

Variable overhead efficiency variance = (Standard hours - Actual hours) * Standard rate

Variable overhead efficiency variance = (2400 - 2300) * 3.25

Variable overhead efficiency variance = $ 325 F