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 24 pounds. The company uses a standard cost of $ 2.15 per pound of clay. Lily produced 3,000 planters in May. In that month, 75,000 pounds of clay were purchased and used at the total cost of $ 153,000. Requirement 1. Calculate the direct material price variance. Begin by determining the formula for the price variance, then compute the price variance for the direct materials. 2. Calculate the direct material quantity variance. Determine the formula for the quantity variance, then compute the quantity variance for the direct materials.

Instructions are below.

Explanation:

Giving the following information:

The standard quantity of clay used for each planter is 24 pounds. The company uses a standard cost of $ 2.15 per pound of clay. Lily produced 3,000 planters in May. In that month, 75,000 pounds of clay were purchased and used at the total cost of $ 153,000.

To calculate the direct material price and quantity variance, we need to use the following formulas:

Direct material price variance = (standard price - actual price) * actual quantity

Actual price = 153,000/75,000 = $2.04

Direct material price variance = (2.15 - 2.04) * 75,000

Direct material price variance = $8,250 favorable

Direct material quantity variance = (standard quantity - actual quantity) * standard price

Standard quantity = 3,000*24 = 72,000 pounds

Direct material quantity variance = (72,000 - 75,000) * 2.15

Direct material quantity variance = $6,450 unfavorable