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. $ 1.00 per sq. ft. $ 12.00 Direct labor 0.25 hr. $ 12.80 per hr. 3.20 Variable manufacturing overhead (based on direct labor hours) 0.25 hr. $ 2.00 per hr. 0.50 Fixed manufacturing overhead ($559,200 ÷ 932,000 units) 0.60 Parker Plastic had the following actual results for the past year: Number of units produced and sold 1,260,000 Number of square feet of plastic used 12,500,000 Cost of plastic purchased and used $ 11,250,000 Number of labor hours worked 330,000 Direct labor cost $ 4,026,000 Variable overhead cost $ 1,480,000 Fixed overhead cost $ 387,000 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 variance).)
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Parker Plastic, Inc., manufactures plastic mats to use with rolling office chairs. Its
| Standard Quantity | Standard Price (Rate) | Standard Unit Cost | |||||
| Direct materials (plastic) | 12 | sq ft. | $ | 1.00 | per sq. ft. | $ | 12.00 |
| Direct labor | 0.25 | hr. | $ | 12.80 | per hr. | 3.20 | |
| Variable manufacturing |
0.25 | hr. | $ | 2.00 | per hr. | 0.50 | |
| Fixed manufacturing overhead ($559,200 ÷ 932,000 units) | 0.60 | ||||||
Parker Plastic had the following actual results for the past year:
| Number of units produced and sold | 1,260,000 | |
| Number of square feet of plastic used | 12,500,000 | |
| Cost of plastic purchased and used | $ | 11,250,000 |
| Number of labor hours worked | 330,000 | |
| Direct labor cost | $ | 4,026,000 |
| Variable overhead cost | $ | 1,480,000 |
| Fixed overhead cost | $ | 387,000 |
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 variance).)
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