you should first file a bug, the snap should clearly ship all required filesystem tools as a stage package so it does not rely on the hosts mkfs (which would mean you could get different images when running on different hosts due to different filesystem formatting tool versions) … here it looks like ubuntu-image tries to use mkfs.vfat from the host and you seem to not have it installed on your system (which is rather weird if you run an ubuntu hosts since this is in the ubuntu-standard task which should be installed)
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Please file a bug here: https://bugs.launchpad.net/ubuntu-image In the meantime, make sure to apt install dosfstools mtools (or the relevant packages on your distro)
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Bug created: