Question
Rides Corp. manufactures a product with the following standard costs: Direct materials (20 yards @ P1.85 per yard) P37.00 Direct labor (4 hours @ P12.00
Rides Corp. manufactures a product with the following standard costs:
Direct materials (20 yards @ P1.85 per yard) P37.00
Direct labor (4 hours @ P12.00 per hour) P48.00
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 @ P1.80 per yard) P28,800
Direct materials used (9,400 yards)
Direct labor (1,880 hours @ P12.20 per hour) P22,936
Actual production in July: 460 units
Compute the following variances for the month of July, indicating whether each variance is favorable or unfavorable:
- Materials purchase price variance
- Materials usage variance
- Labor rate variance
- Labor efficiency variance
- Give potential reasons for each of the variances. Be sure to consider inter-relationships among variances.
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