1. Peaches Corporation manufactures a product with the following standard costs:

Direct materials (20 yards @ P3.70 per yard) 74.00

Direct labor (4 hours @ P24.00 per hour) 96.00

Standards are based on normal monthly production involving 2,000 direct labor hours (500 units of output).

The following information pertains to July:

Direct materials purchased (16,000 yards @ $3.60 per yard) P57,600

Direct materials used (9,400 yards)

Direct labor (1,880 hours @ P24.40 per hour) P45,872

Actual production in July: 460 units

Required:

A. Compute the following variances for the month of July, indicating whether each variance is favorable or unfavorable:

1. Materials purchase price variance

2. Materials usage variance

3. Labor rate variance

4. Labor efficiency variance

B. Give potential reasons for each of the variances. Be sure to consider inter-relationships among variances.