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.

Required:

1-a. What cost for wood should have been incurred to make 1,200 CertiPro II cutting boards?

1-b. 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).)

Answer 1

Question 1 A

Costs should have been incurred to manufacture 1,200 Boards = Actual Boards Manufactured * Standard Material Quantity per Board * Standard Rate per Metre of Material used

Standard Material Quantity per Board = 0.40 Meter

Standard Rate per Meter = $ 5

Costs should have been incurred to manufacture 1,200 Board = 1,200 * 0.4 * 5 = $ 2,400

Question 1 B

Variance Between Costs should have been incurred and Actual Costs = 2,400 - 2,970

Variance = ($ 570) Unfavorable

The actual cost spent is $ 570 more than that should have been actually incurred.

Question 2

Material Price Variance = (Standard Price - Actual Price) * Actual Quantity of Material Used

Actual Quantity of Material Used = 540 Meters

Standard Rate per Meter = $ 5

Actual Rate per Meter = 2,970 / 540 = $ 5.5

Material Price Variance = (5-5.5) * 540

Material Price Variance = ($ 270) Unfavorable

Material Quantity Variance = (Standard Quantity for Actual Output - Actual Quantity Used) * Standard Rate per Meter

Standard Rate per Meter = $ 5

Actual Quantity Used = 540 Meters

Standard Quantity for Actual Output = 1200 Board * 0.4 per Board = 480 Meters

Material Quantity Variance = (480-540)*5

Material Quantity Variance = ($ 300) Unfavorable