Question

Organic Ceramics produces large planters to be used in urban landscaping projects. A special earth clay is used to make the planters. The standard quantity of clay used for each planter is 31 pounds. Organic uses a standard cost of $2.20 per pound of the clay. Organic produced 2,500 planters in May. In that month, 80,000 pounds of clay were purchased and used at the total cost of $168,000Requirements1.Calculate the direct material price variance.2.Calculate the direct material quantity variance.

Answer 1

Answer:

Direct material price variance

= (Standard price - Actual price) x Actual quantity purchased

= ($2.2 -  $2.10) x 80,000 units

= $8,000 (F)

Actual price = Actual material cost

                        Actual quantity purchased                                                                                                                                                                                                                                                                                                        

                     =  $168,000

                         80,000 pounds

                    =  $2.10    

Direct material quantity variance    

= (Standard quantity - Actual quantity used) x Standard price    

= (77,500 - 80,000)  x  $2.20

= $5,500(A)      

Standard quantity = 31 pounds x 2,500 planters = 77,500 pounds                                                                                                                                                                                                                                                                                                                                                                                                                                                      

                                                                                                                                                                                                                             

Explanation:

Direct material price variance is the difference between standard price and actual price multiplied by actual quantity purchased.  The actual  price is obtained by dividing the actual cost of material by the actual  quantity purchased.      

Direct material usage variance is the difference between standard quantity and actual quantity used multiplied by standard price.

The standard quantity is obtained by multiplying the standard quantity for each planter multiplied by the number of planter produced.