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)	9	sq ft.	$	1.30	per sq. ft.	$	11.70
Direct labor	0.3	hr.	$	13.50	per hr.		4.05
Variable manufacturing overhead (based on direct labor hours)	0.3	hr.	$	1.30	per hr.		0.39
Fixed manufacturing overhead $619,080 ÷ 938,000 units)							0.66

Parker Plastic had the following actual results for the past year:

Number of units produced and sold		1,000,000
Number of square feet of plastic used		12,800,000
Cost of plastic purchased and used	$	15,360,000
Number of labor hours worked		336,000
Direct labor cost	$	4,200,000
Variable overhead cost	$	1,700,000
Fixed overhead cost	$	393,000

Calculate Parker Plastic’s direct labor rate and efficiency variances. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

		F / UF
Direct Labor Rate Variance
Direct Labor Efficiency Variance

Answer 1

Labor rate variance = (SR-AR) * AH

= (13.50 - 4,200,000/336,000) * 336,000

= 336,000 F

Labor efficiency variance = (SH-AH)* SR

= (1,000,000*0.3 - 336,000) * 13.50

= 486,000 U

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