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Harmon Household Products, Inc., manufactures a number of consumer items for general household use. One of these products, a chopping board, requires an expensive hardwood. During a recent month, the company manufactured 3, 900 chopping boards using 2, 574 board feet of hardwood. The hardwood cost the company $19, 562. The company’s standards for one chopping board are 0.60 board feet of hardwood, at a cost of $8.00 per board foot. 1a. According to the standards, what cost for wood should have been incurred to make 3, 900 chopping blocks? (Omit the “$” sign in your response.) 1b. How much greater or less is this than the cost that was incurred? (Input the amount as a positive value. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.) Break down the difference computed in (1) above into a materials price variance and a materials quantity variance (Input all amounts as positive values. Do not round intermediate Leave no cells blank- be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e.., zero variance). Omit the “$” sign in your response.)
Expert Answer
1a) Total standard cost for chopping the wood = 3900 blocks * 0.60 board feet * $8 = $18720.
1b) Spending variance = Standard cost – Actual cost = $18720 – $19562 = $842U
2) Material price variance = Actual quantity * Standard price – Actual quantity * Actual price
= 2574* 8 – $19562
= $20592 – $19562
= $1030F
Material quantty variace = Standard price * Standard quantity – Standard price * Actual quantity
Standard quantity = 3900*0.6 = 2340 feet
= $8*2340 – $8*2574
= $1872U
