Fantastic Feeder Products Inc. manufactures high-quality wooden cutting boards s
ID: 2562689 • Letter: F
Question
Fantastic Feeder Products Inc. manufactures high-quality wooden cutting boards sold to restaurants
and gourmet home cooks. One of these boards, the CertiPro II, requires an expensive hardwood. During a recent month, the company manufactured 1,200 CertiPro II cutting boards using 540 metres of hardwood. The hardwood cost the company $2,970.
The company’s standards for one CertiPro II cutting board are 0.4 metres of hardwood, at a cost of $5.00 per metre.
What cost for wood should have been incurred to make 1,200 CertiPro II cutting boards?
How much greater or less is this than the cost that was incurred? (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)
2.
Break down the difference computed in requirement 1-b above into a materials price variance and a materials quantity variance. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)
Fantastic Feeder Products Inc. manufactures high-quality wooden cutting boards sold to restaurants
and gourmet home cooks. One of these boards, the CertiPro II, requires an expensive hardwood. During a recent month, the company manufactured 1,200 CertiPro II cutting boards using 540 metres of hardwood. The hardwood cost the company $2,970.
The company’s standards for one CertiPro II cutting board are 0.4 metres of hardwood, at a cost of $5.00 per metre.
Explanation / Answer
Solution:
1-a)
the cost for wood should have been incurred to make 1,200 CertiPro II cutting boards = 1200 Boards x Standard Quantity required per board 0.4 meters x Standard Cost per meter $5
= 1200*0.4*5
= $2,400
1-b
The actual cost incurred = $2,970
Standard Cost that should have been incurred = $2,400
Standard Cost is less than $570 than the cost that was incurred.
Material Variance = Standard Cost 2400 – Actual Cost $2970 = $570 Unfavorable
2)
Material Price Variance = Actual Quantity (Standard Price – Actual Price)
= AQ*SP – AQ*AP
= (540*5) - $2,970
= $2700 - $2970
= $270 Unfavorable
Material Quantity Variance = Standard Price (Standard Quantity for actual production calculated in part 1-a – Actual Quantity)
Standard Quantity for actual production = 1200 Boards x 0.4 standard quantity required per board = 480 meter
= $5 (480 – 540)
= $300 Unfavorable
Total Material Variance = 270U + 300U = $570 U
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