Parker Plastic, Inc., manufactures plastic mats to use with rolling office chair

Question

Parker Plastic, Inc., manufactures plastic mats to use with rolling office chairs. Its standard cost information for last year follows:

Parker Plastic had the following actual results for the past year:

Calculate Parker Plastic’s fixed overhead spending and volume variances and its over- or underapplied fixed overhead. (Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)

Standard Quantity Standard Price (Rate) Standard Unit Cost Direct materials (plastic) 12 sq ft. $ 0.63 per sq. ft. $ 7.56 Direct labor 0.2 hr. $ 10.10 per hr. 2.02 Variable manufacturing overhead (based on direct labor hours) 0.2 hr. $ 0.60 per hr. 0.12 Fixed manufacturing overhead $252,000 ÷ 840,000 units) 0.30

Parker Plastic had the following actual results for the past year:

Number of units produced and sold 940,000 Number of square feet of plastic used 10,810,000 Cost of plastic purchased and used $ 6,594,100 Number of labor hours worked 183,000 Direct labor cost $ 1,775,100 Variable overhead cost $ 128,100 Fixed overhead cost $ 232,000

Calculate Parker Plastic’s fixed overhead spending and volume variances and its over- or underapplied fixed overhead. (Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)

Fixed Overhead Spending Variance Fixed Overhead Volume Variance Over- or Underapplied Fixed Overhead

Explanation / Answer

(a) Computation of the fixed overhead spending variance.We have,

Actual fixed overhead cost per unit = Actual overhead cost / Number of units produced or sold

Actual fixed overhead cost per unit = 232,000 / 940,000 = $ 0.25 per unit

Fixed overhead cost per unit = $ 0.30 per unit

Fixed Overhead spending Variance = Actual Fixed Overhead per unit - Standard Fixed overhead per unit

Fixed overhead spending variance = 0.30 - 0.25

Fixed Overhead spending variance = $ 0.05 per unit ( Favourable)

(b) Computation of the Fixed Overhead Volume Variance.We have,

Fixed Overhead Volume Variance = ( Actual number of unit produced - Standard number of unit produced) x Standard fixed overhead rate

Fixed Overhead volume variance = ( 940,000 - 840,000) x 0.30

Fixed Overhead volume variance = $ 30,000 ( Favorable)

(c) Comuputation of the Over- or Underapplied Fixed Overhead.We have,

Over- or Underapplied fixed overhead = Actual fixed overhead cost - Standard fixed overhead cost

Over- or Underapplied fixed overhead = 232,000 - 252,000 = $ 20,000 ( Favourable)

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