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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:

  1. Materials purchase price variance
  2. Materials usage variance
  3. Labor rate variance
  4. Labor efficiency variance
  5. Give potential reasons for each of the variances. Be sure to consider inter-relationships among variances.

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