EXERCISE $8-6$ Variable Overhead Variances $[$LO$8-6]$

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 cus$-$

tomer, 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, $0\mathrm{.}02$ direct labor$-$hours are required to fulfill an order for one

item and the variable overhead rate is $$3\mathrm{.}25$ per direct labor$-$hour.

Required:

According to the standards, 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?

Break down the difference computed in $(1)$ above into a variable overhead rate variance and a variable

overhead efficiency variance.