Parker Plastic, Inc., manufactures plastic mats to use with rolling office chair
ID: 2579539 • 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. $ 0.82 per sq. ft. $ 8.20 Direct labor 0.25 hr. $ 10.20 per hr. 2.55 Variable manufacturing overhead (based on direct labor hours) 0.25 hr. $ 1.40 per hr. 0.35 Fixed manufacturing overhead $270,600 ÷ 902,000 units) 0.30 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 11,000,000 Cost of plastic purchased and used $ 8,800,000 Number of labor hours worked 300,000 Direct labor cost $ 3,000,000 Variable overhead cost $ 400,000 Fixed overhead cost $ 357,000 Required: Calculate Parker Plastic’s variable overhead rate and efficiency variances and its over- or underapplied variable overhead.
Explanation / Answer
Calculate Parker Plastic’s variable overhead rate and efficiency variances and its over- or underapplied variable overhead.
Variable overhead rate variance = (standard rate-actual rate)actual hours
= (1.40*300000-400000)
Variable overhead rate variance = 20000 Favourable
Variable overhead efficiency variance = (standard hours-actual hours)standard rate
= (1020000*.25-300000)1.4
Variable overhead efficiency variance = 63000 Unfavourable
Under (over) applied = Applied overhead-actual overhead
= (1020000*.35)-400000
Under applied overhead = 43000