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) 12 sq ft. $ 1.10 per sq. ft. $ 13.20 Direct labor 0.25 hr. $ 13.20 per hr. 3.30 Variable manufacturing overhead (based on direct labor hours) 0.25 hr. $ 2.20 per hr. 0.55 Fixed manufacturing overhead $579,080 ÷ 934,000 units) 0.62 Parker Plastic had the following actual results for the past year: Number of units produced and sold 1,280,000 Number of square feet of plastic used 12,600,000 Cost of plastic purchased and used $ 12,600,000 Number of labor hours worked 332,000 Direct labor cost $ 4,083,600 Variable overhead cost $ 1,589,000 Fixed overhead cost $ 389,000 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.)

Answer 1

Variable overhead Rate variance = Actual cost - [AH*SR]

                                       = 1589000 - [332000*2.2]

                                         = 1589000 - 730400

                                       = $ 858600 U

Variable overhead efficiency variance =SR [AH -SH]

                           = 2.2 [ 332000 - (1280000*.25) ]

                           = 2.2 [332000 -320000]

                           = 2.2 * 12000

                          = 26400 U