Parker Plastic, Inc., manufactures plastic mats to use with rolling office chair
ID: 2462034 • 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)
9
sq ft.
$
1.30
per sq. ft.
$
11.70
Direct labor
0.3
hr.
$
13.50
per hr.
4.05
Variable manufacturing overhead
(based on direct labor hours)
0.3
hr.
$
1.30
per hr.
0.39
Fixed manufacturing overhead
($619,080 ÷ 938,000 units)
0.66
Parker Plastic had the following actual results for the past year:
Number of units produced and sold
1,000,000
Number of square feet of plastic used
12,800,000
Cost of plastic purchased and used
$
15,360,000
Number of labor hours worked
336,000
Direct labor cost
$
4,200,000
Variable overhead cost
$
1,700,000
Fixed overhead cost
$
393,000
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.)
Variable Overhead Rate Variance
$
Variable Overhead Efficiency Variance
$
Variable Overhead Spending Variance
$
Parker Plastic, Inc., manufactures plastic mats to use with rolling office chairs. Its standard cost information for last year follows:
Explanation / Answer
Variable overhead rate variance = (Standard rate per hour - Actual rate per hour Standard rate per hour = $1.30 per hour Actual rate per hour = 1700000 / 336000 = $5.06 per hour Variable overhead rate variance = 1.30 - 5.06 = -$3.76 per hour Unfavorable Variable overhead efficiency variance = standard overhead rate * (Actual hours - standard hours) Standard variable overhead rate per hour = $1.30 per hour Actual hours worked = 336000 hours Standard hours = 1000000 units * 0.30 hour = 300000 hours Variable overhead efficiency variance = 1.30 * (336000 - 300000) = $46800 UnFavourable Variable overhead spending variance = Actual hours worked * (Actual overhead rate - standard overhead rate) Actual hours worked = 336000 hours Actual variable overhead rate per hour = $1700000 / 336000 hours = $5.06 per hour Standard variable overhead rate per hour = $1.30 per hour Variable overhead spending variance = 336000 *(1.30 - 5.06) = -$1263360 Unfavorable In $ Variable overhead rate variance -3.76 U Variable overhead efficiency variance -46,800 U Variable overhead spending variance -12,63,360 U