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 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 4,700 direct labor hours. The company incurred a total of $16,215 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 $3.5 per direct labor?hour.