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:

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.)

Standard Quantity Standard Price (Rate) Standard Unit Cost Direct materials (plastic) 12 sq ft. $ 1.00 per sq. ft. $ 12.00 Direct labor 0.25 hr. $ 12.80 per hr. 3.20 Variable manufacturing overhead (based on direct labor hours) 0.25 hr. $ 2.00 per hr. 0.50 Fixed manufacturing overhead $559,200 ÷ 932,000 units) 0.60

Explanation / Answer

Actual labor hours worked = 330,000

Actual variable overhead rate

= Actual variable overhead cost/Actual labor hours worked

= $1,480,000/330,000 hours

= $4.484848

Standard overhead rate = $2

Standard hours for actual quantity produced

= Units produced x Standard hours per unit

= 1,260,000 x 0.25

= 315,000

Now calculate the variances as follows:

Variable overhead rate variance

= (Actual rate - Standard rate) x Actual hours

= ($4.484848 - $2) x 330,000

= $820,000 Unfavorable

Variable overhead efficiency variance

= (Actual hours - Standard hours for actual production) x Standard rate

= (330,000 - 315,000) x $2

= $30,000 Unfavorable

Variable overhead spending variance

= (Standard hours for actual production x Standard rate) - Actual variable overhead

= (315,000 x $2) - $1,480,000

= $850,000 unfavorable

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