Logistics Solutions provides order fulfillment services for dot.com merchants. The company maintains warehouses which 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, 130,000 items were shipped to customers using 4,700 direct labor-hours. The company incurred a total of $13,630 in variable overhead costs.
According to the company's standards, 0.03 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $2.95 per direct labor-hour.
1. According to the standards, what variable overhead cost should have been incurred to fill the orders for the 130,000 items? How much does this differ from the actual variable overhead cost? (Round labor-hours per item and overhead cost per hour to 2 decimal places.)
Product costing is the assignment of costs to the units of output produced by a company. These costs may include raw materials, labor costs, and manufacturing overhead. There are different approaches to product costing such as variable costing (direct costing), where only variable manufacturing costs are considered product costs; and absorption costing (full costing), where all manufacturing costs are treated as product costs.
Answer and Explanation:
1. standard overhead = standard labor hours per unit x number of units x rate per direct labor hour
standard overhead = 0.03 x 130,000 x $2.95
standard overhead = $11,505
difference = standard overhead - actual overhead
difference = $11,505 - $13,630
difference = $2,125
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from Financial Accounting: Help and ReviewChapter 13 / Lesson 5