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11 October, 17:56

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?

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  1. 11 October, 18:20
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    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
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