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.

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 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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Variance Analysis

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