Logistics Solutions provides order fulfillment services for dot-com merchants. The company maintainswarehouses 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 shipsit 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 oneitem and the variable overhead rate is $3.25 per direct labor-hour.Required:1. What variable overhead cost should have been incurred to fill the orders for the 120,000 items? Howmuch does this differ from the actual variable overhead cost?2. Break down the difference computed in (1) above into a variable overhead rate variance and a variableoverhead efficiency variance.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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 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?
2. Break down the difference computed in (1) above into a variable overhead rate variance and a variable
overhead efficiency variance.
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