Question

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.What variable overhead cost should have been incurred to fill the orders for the 120,000 items? How much does this differ from the actual variable overhead cost?

Answer 1

Answer: $7800, difference of $440

Explanation:

Items shipped = 120,000

Variable overhead cost = $7360

direct labour hours monthly = 2300

company labor per hour per item = 0.02

Variable overhead rate per hour per direct labour = $3.25

Variable of overhead cost required to fill 120,000 orders

Orders shipped × labor per hr × variable overhead per hr.

= 120000 × 0.02 × $3.25

= $7800

Difference in variable over head

= $7800 - $7360

= $440

Answer 2

Answer:

The variable overhead cost that should be incurred to meet order demand for 120,000 items is $7800. The difference from the actual cost is $440.

Explanation:

Given information:

The number of shipped items is 120,000.

Direct labor cost is 2300.

The variable overhead cost is $7360.

Direct labor hours required is 0.02 per item.

The variable overhead rate is $3.25 per hour.

The formula to compute standard variable overhead cost that is required to fill an order of 120,000 items is as follows:

Initially, the total labor hours would be derived by multiplying the total number of shipped items with standard direct labor hours.

$120,000*0.02\\= 2400$

Thus, the total labor hours is 2400.

Now, the total labor hour allowed would be multiplied with the standard variable overhead cost.

$2400*3.25\\= 7800$

Thus, the total standard variable overhead cost is $7800.

The variance in overhead cost is derived by subtracting actual overhead cost from total standard variable overhead cost, which is:

$7800-7360\\=440$

Hence, $7800 overhead cost would fulfill the demand for an order of 120,000 items. And, the variance difference between actual overhead cost and total variable overhead cost is $440.

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