Parker Plastic, Inc., manufactures plastic mats to use with rolling office chair
ID: 2460031 • Letter: P
Question
Parker Plastic, Inc., manufactures plastic mats to use with rolling office chairs. Its standard cost information for last year follows: Standard Quantity Standard Price (Rate) Standard Unit Cost Direct materials (plastic) 10 sq ft. $ 1.40 per sq. ft. $ 14.00 Direct labor 0.3 hr. $ 13.70 per hr. 4.11 Variable manufacturing overhead (based on direct labor hours) 0.3 hr. $ 1.50 per hr. 0.45 Fixed manufacturing overhead ($639,200 ÷ 940,000 units) 0.68 Parker Plastic had the following actual results for the past year: Number of units produced and sold 1,020,000 Number of square feet of plastic used 12,900,000 Cost of plastic purchased and used $ 16,770,000 Number of labor hours worked 338,000 Direct labor cost $ 4,258,800 Variable overhead cost $ 1,760,000 Fixed overhead cost $ 395,000 Required: Calculate Parker Plastic’s variable overhead rate and efficiency variances and its over- or underapplied variable overhead. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)
Explanation / Answer
Variable overhead rate variance =AH * VOAR - AH * VOSR
= 1760000 - (338000* 1.5)
= 1760000 - 507000
= 1253000 U
Efficiency variance = SVOR ( AH-SH)
= 1.5 [338000 - (1020000 *.3)]
= 1.5 [338000 - 306000]
= 1.5 * 32000
= 48000 U
Applied overhead = 1020000 * .3 *1.5 = 459000
Actual = 1760000
Overhead underapplied = 459000 - 1760000 = - 1301000 Underapplied