Question

Logistics Solutions provides order fulfillment services for virtual companies. The company stores the products of its virtual clients. When a customer receives an order from a buyer, he sends it to Logistics Solutions, which takes the item from the warehouse, packs it and ships it to the buyer. The company uses a predetermined rate of variable indirect costs over hours of direct labor. In the last month, 120000 articles were sent to customers in 2300 hours of direct labor. The company incurred a total of $ 7360 of variable indirect costs. According to company standards, 0.02 hours of direct labor are required to prepare an order for an item, and the variable indirect cost rate is $ 3.25 per hour for direct labor.

1. At what indirect variable costs should you incur to ship orders for 120,000 items? How much did it vary with respect to the real indirect variable cost?

2. Breakdown of the difference calculated in point 1) in the variation of the expense by the indirect variable cost and the variation in the efficiency of that cost

3. Determine the total indirect variable costs that must have been incurred to dispatch the orders of 120000 items (total standard cost).

4. Determine how much higher or lower the total standard cost is than the actual cost incurred (total variation).

5. Break down the total hand variation of indirect costs between the variation in volume and the variation in expenditures.

Answer 1

1)	The indirect variable costs that should have been incurred = 120000*0.02*3.25 =	7800
	Variance with real cost = 7360-7800 =	440	Favorable
2)	Expenditure variance with respect to indirect variable cost = 7360-2300*3.25 =	115	Favorable
	Variation in efficiency = (2300-120000*0.02)*3.25 =	325	Favorable
3)	Standard cost = 120000*0.02*3.25 =	7800
4)	Total variation = 7800-7360 =	440	Favorable
5)	Budgeted volume is not given. Hence, volume variance
	cannot be computed.
	Variation in expenditure is computed under (2) above.
	Note:
	Questions 3, 4 and 5 are repetitions.