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Exercise 10-4 Variable Overhead Variances [LO4]

Exercise 10-4 Variable Overhead Variances [LO4]
Order Up, Inc., 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 Order Up, 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, 140,000 items were shipped to customers using 5,800 direct labor hours. The company incurred a total of $15,950 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 $2.80 per direct labor−hour.

Requirement 1:
(a) What variable overhead cost should have been incurred to fill the orders for the 140,000 items? (Omit the "$" sign in your response.)

Variable overhead cost $

(b) How much does this differ from the actual variable overhead cost? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Omit the "$" sign in your response.)

Total variable overhead variance $

Requirement 2:
Break down the difference computed above into a variable overhead spending variance and a variable overhead efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Omit the "$" sign in your response.)

Overhead spending variance $

Overhead efficiency variance $
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Hint 1
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Attachments

Solution Summary

The solution explains how to calculate the variable overhead variances in an attached Word document.

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