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.

Answer 1

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

                       = 1,700,000 - [336,000 * 1.30 ]

                        =1,700,000 - 436,800

                        = 1,263,200 U

Variable overhead efficiency variance = SR[AH-SH for actual output]

                                   = 1.30 [336,000 - (1,000,000*.30)]

                                  = 1.30 [336,000 - 300,000]

                                 = 1.30 * 36000

                                 = 46800 U

Actual variable overhead	1,700,000
less:Applied overhead [1,000,000actual output *.30 hours per unit*1.30 rate per hour]	(390,000)
Under-appied overhead	1310000