Fantastic Feeder Products Inc., manufactures a number of bird feeders for genera

Question

Fantastic Feeder Products Inc., manufactures a number of bird feeders for general household and backyard use. One of these products, a rustic bird feeder, requires an expensive hardwood. During a recent month, the company manufactured 9,000 rustic bird feeders using 6,200 metres of hardwood. The hardwood cost the company $23,560.

The company’s standards for one rustic bird feeder are 0.6 metres of hardwood, at a cost of $4.05 per metre.

Required:

What cost for wood should have been incurred to make 9,000 rustic bird feeters? How much greater or less is this than the cost that was incurred?

Break down the difference computed above into a materials price variance and a materials quantity variance.

Explanation / Answer

Fantastic Feeder Products Inc. All Amounts in $ Standard Cost of Making 9,000 Bird Feeders = 9,000 X 0.60 metres of hardwood per feeder X $ 4.05 per metre = 21870 $ The cost actually incurred for making the 9,000 bird feeders was $ 23,560 Hence, the amount greater than the standard cost which was incurred = $ 23,560 - $ 21,870 = $ 1,690. Material Price Variance = (Standard Price per metre - Actual Price per metre) X Actual quantity used for bird feeders Actual Price per Metre = $ 23,560 / 6,200 = 3.8 $ Thus, Material Price Variance = ($ 4.05 - $ 3.8) X 6,200 = 1550 $ Favorable Materials Quantity Variance = (Standard Quantity Required - Actual Quantity Used) X Standard Price per metre = ((9,000 X 0.60) - 6,200) X 4.05 = -3240 $ Unfavorable

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