Question

Parker Plastic, Inc., manufactures plastic mats to use with rolling office chairs. Its standard cost information for last year follows: Standard Quantity 12 sq ft. 0.25 hr. Standard Price (Rate) Standard Unit Cost $ 0.72 per sq. ft. $8.64 $12.20 per hr. 3.05 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. 0.39 0.42 Parker Plastic had the following actual results for the past year: 1,000,000 $ 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 $ 8, 260,000 245.000 2,891,000 318,500 355,000 Required: 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, "U" for unfavorable, and "None" for no effect (.e.. zero variance).)

Answer 1

Calculation of fixed overhead spending variance
Fixed overhead spending variance	Actual fixed overhead - Budgeted fixed overhead
Fixed overhead spending variance	355000-378000
Fixed overhead spending variance	$23,000	F
Actual fixed overhead is higher than budgeted fixed overhead and thus variance is favorable.
Calculation of fixed overhead volume variance
Fixed overhead volume variance	(Actual volume - Budgeted volume)*Fixed overhead rate
Fixed overhead volume variance	(1000000-900000)*0.42
Fixed overhead volume variance	$42,000	F
Company has produced higher volume then predicted and thus variance is favorable.
Calculation of over or under applied fixed overhead
Over applied overhead	$23000 F + $42000 F
Over applied overhead	$65,000	F