PROBLEM SOLVING (25%)

Moda Mills, Inc., is a large producer of men's and women's clothing. The company uses standard costs

for all

of its products. The standards costs and actual costs for a recent period are given below for one of

the company's

product

lines (per unit of product):

Particulars Standard Cost Actual Cost

Direct materials:

Standard: 4.0 yards at P3.60 per yard P14.40

Actual: 4.4 yards at P3.35 per yards P14.74

Direct labor:

Standard: 1.6 hours at P4.5 per hour P7.20

Actual: 1.4 hours at P4.85 per hour P6.79

Variable manufacturing overhead:

Standard: 1.6 hours at P1.8 per hour P2.88

Actual: 1.4 hours at P2.15 per hour P3.01

Total cost per unit P24.48 P24.54

During the period, the company produced 4,800 units of product. A comparison of standard and actual

costs for the period on a total cost basis is shown below:

Actual costs: 4,800 units at P24.54 P117,792

Standard costs: 4,800 units at P24.48 P117,504

Difference in cost (Unfavorable) P 288

There was no inventory of materials on hand to start the period. During the period, 21,120 yards of

materials were purchased, all of which were used in production.

Required:

1. for direct materials:

a.Compute the price and quantity variances for the period.

b. prepare journal entries to record all activity relating to direct materials for the period

2. For direct labor:

a. compute rate and efficiency variances.

b. prepare the journal entry to record the incurrence of direct labor for the period.

3. Compute the variable manufacturing overhead spending and efficency variances.

4. On seeing the P288 total cost variance the comapny's president stated, "This variance of P288 is only 0.2% of the 117,504 standard cost for the period. It's obvious that our cost are well under control. Do you agree? explain.

5. State possible causes of each variance that you have computed.