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.	$	0.63	per sq. ft.	$	7.56
Direct labor	0.2	hr.	$	10.10	per hr.		2.02
Variable manufacturing overhead (based on direct labor hours)	0.2	hr.	$	0.60	per hr.		0.12
Fixed manufacturing overhead $252,000 ÷ 840,000 units)							0.30
Parker Plastic had the following actual results for the past year: Number of units produced and sold 940,000 Number of square feet of plastic used 10,810,000 Cost of plastic purchased and used $ 6,594,100 Number of labor hours worked 183,000 Direct labor cost $ 1,775,100 Variable overhead cost $ 128,100 Fixed overhead cost $ 232,000 Calculate Parker Plastic’s fixed overhead spending and volume variances and its over- or underapplied fixed overhead. (Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.) Fixed Overhead Spending Variance Fixed Overhead Volume Variance Over- or Underapplied Fixed Overhead

Answer 1

(a) Computation of the fixed overhead spending variance.We have,

Actual fixed overhead cost per unit = Actual overhead cost / Number of units produced or sold

Actual fixed overhead cost per unit = 232,000 / 940,000 = $ 0.25 per unit

Fixed overhead cost per unit = $ 0.30 per unit

Fixed Overhead spending Variance = Actual Fixed Overhead per unit - Standard Fixed overhead per unit

Fixed overhead spending variance = 0.30 - 0.25

Fixed Overhead spending variance = $ 0.05 per unit ( Favourable)

(b) Computation of the Fixed Overhead Volume Variance.We have,

Fixed Overhead Volume Variance = ( Actual number of unit produced - Standard number of unit produced) x Standard fixed overhead rate

Fixed Overhead volume variance = ( 940,000 - 840,000) x 0.30

Fixed Overhead volume variance = $ 30,000 ( Favorable)

(c) Comuputation of the Over- or Underapplied Fixed Overhead.We have,

Over- or Underapplied fixed overhead = Actual fixed overhead cost - Standard fixed overhead cost

Over- or Underapplied fixed overhead = 232,000 - 252,000 = $ 20,000 ( Favourable)