Parker Plastic, Incorporated, 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 square foot $0.73 per square foot $8.03 Direct labor 0.25 hour $10.40 per hour $2.60 Variable manufacturing overhead (based on direct labor hours) 0.25 hour $2.00 per hour $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 1. Calculate Parker Plastic’s direct materials price and quantity variances.
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, Incorporated, manufactures plastic mats to use with rolling office chairs. Its
| Standard Quantity | Standard Price (Rate) | Standard Unit Cost | |||
|---|---|---|---|---|---|
| Direct materials (plastic) | 11 square foot | $0.73 per square foot | $8.03 | ||
| Direct labor | 0.25 hour | $10.40 per hour | $2.60 | ||
| Variable manufacturing overhead (based on direct labor hours) | 0.25 hour | $2.00 per hour | $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 |
1. Calculate Parker Plastic’s direct materials price and quantity variances.
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