Question

Parker Plastic, Inc., manufactures plastic mats to use with rolling office chairs. Its standard cost information for last year follows: Standard Standard Price (Rate) init Cost Standard Quantity 12 sq ft. 8.25 hr. $ 0.72 per sq. ft. $12.20 per hr. 58.64 3.es Direct materials (plastic) Direct labor Variable manufacturing overhead (based on direct labor hours) Fixed manufacturing overhead ($378,000 + 900,000 units) 0.25 hr. $ 1.20 per hr. 0.30 0.42 Parker Plastic had the following actual results for the past year $ Number of units produced and sold Number of square feet of plastic used Cost of plastic purchased and used Number of labor hours worked Direct labor cost Variable overhead cost Fixed overhead cost 1,000,000 11.800,000 8,260,000 245,000 2,891,000 318,500 355,000 $ $ $ 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, "U" for unfavorable, and "None" for no effect i.e., zero varience).) A7 Next >

Answer 1

Calculation of variable overhead rate variance
Variable overhead rate variance	(Actual rate - Standard rate)*Actual hours worked
Variable overhead rate variance	(1.30-1.20)*245000
Variable overhead rate variance	$24,500	U
Actual rate is higher than budgeted and thus variance is unfavorable.
Actual rate	318500/245000
Actual rate	$1.30
Calculation of variable overhead efficiency variance
Variable efficiency variance	(Actual hours - Standard hours)*Standard rate
Variable efficiency variance	(245000-250000)*1.20
Variable efficiency variance	$6,000	F
Actual hours used is lower than standard allowed and thus variance is favorable.
Standard hours	0.25*1000000
Standard hours	250000
Calculation of variable overhead spending variance
Variable overhead spending variance	Actual overhead - Budgeted overhead
Variable overhead spending variance	318500-(0.30*1000000)
Variable overhead spending variance	318500-300000
Variable overhead spending variance	$18,500	U
Actual overhead is higher than budgeted and thus variance is unfavorable