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) 11 sq ft. $ 0.73 per sq. ft. $ 8.03 Direct labor 0.25 hr. $ 10.40 per hr. 2.60 Variable manufacturing overhead (based on direct labor hours) 0.25 hr. $ 2.00 per hr. 0.50 Fixed manufacturing overhead $326,880 ÷ 908,000 units) 0.36 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 11,300,000 Cost of plastic purchased and used $ 7,910,000 Number of labor hours worked 306,000 Direct labor cost $ 3,335,400 Variable overhead cost $ 630,000 Fixed overhead cost $ 363,000 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

• Requirements asked, with calculations

[1]

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                               2.00	-	$                       2.06	)	x	306000
	-18000
	Variance		$            18,000.00			Unfavourable-U

[2]

Variable Overhead Efficiency Variance
(	Standard Hours = 1020000 units x 0.25 hrs	-	Actual Hours	)	x	Standard Rate
(	255000	-	306000	)	x	$                           2.00
	-102000
	Variance		$          102,000.00			Unfavourable-U

[3]

Under Applied variable Overhead = $ 120,000

Variable Overhead Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$                  510,000.00	-	$          630,000.00	)
	-120000
	Variance		$          120,000.00			Unfavourable-U