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) 8 sq ft. $ 1.02 per sq. ft. $ 8.16 Direct labor 0.3 hr. $ 11.10 per hr. 3.33 Variable manufacturing overhead (based on direct labor hours) 0.3 hr. $ 2.60 per hr. 0.78 Fixed manufacturing overhead ($383,880 ÷ 914,000 units) 0.42 Parker Plastic had the following actual results for the past year: Number of units produced and sold 1,080,000 Number of square feet of plastic used 11,600,000 Cost of plastic purchased and used $ 11,600,000 Number of labor hours worked 312,000 Direct labor cost $ 3,681,600 Variable overhead cost $ 800,000 Fixed overhead cost $ 369,000

Required: Calculate Parker Plastic’s direct labor rate and efficiency variances.

Answer 1

• Requirement asked:
  >Direct labor rate variance = $ 218400 U
  >Direct Labor efficiency variance = $ 133200 F
• Calculation

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                              11.10	-	$                    11.80	)	x	312000
	-218400
	Variance		$          218,400.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	324000	-	312000	)	x	$                        11.10
	133200
	Variance		$          133,200.00			Favourable-F