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    Case - SunAir Boat Builders Part - 2

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    SunAir Boat Builders produces small fiberglass sailboats. It instituted a standard cost system to help control costs and provide performance metrics as it plans to expand its product line. Analysis found unfavorable variances in the molding department, with actual costs higher than standards. The company's president wants a meaningful discussion of the variances and whether automation could help before deciding on changes.

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    Case - SunAir Boat Builders Part - 2

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    dhakar_ravi1
    215 views3 pages
    SunAir Boat Builders produces small fiberglass sailboats. It instituted a standard cost system to help control costs and provide performance metrics as it plans to expand its product line. Analysis found unfavorable variances in the molding department, with actual costs higher than standards. The company's president wants a meaningful discussion of the variances and whether automation could help before deciding on changes.

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    Case- SunAir Boat Builders Part - 2

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    SunAir Boat Builders produces small fiberglass sailboats. It instituted a standard cost system to help control costs and provide performance metrics as it plans to expand its product line. Analysis found unfavorable variances in the molding department, with actual costs higher than standards. The company's president wants a meaningful discussion of the variances and whether automation could help before deciding on changes.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    215 views3 pages

    Case - SunAir Boat Builders Part - 2

    Uploaded by

    dhakar_ravi1
    SunAir Boat Builders produces small fiberglass sailboats. It instituted a standard cost system to help control costs and provide performance metrics as it plans to expand its product line. Analysis found unfavorable variances in the molding department, with actual costs higher than standards. The company's president wants a meaningful discussion of the variances and whether automation could help before deciding on changes.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    PART –B Marks- 14

    SunAir Boat Builders, Inc.*


    Located in New Hampshire, SunAir Boat Builders served boaters with a small, lightweight
    fiberglass sailboat capable of being carried on a car roof. Though the firm could hardly be
    considered as one of the nation’s industrial giants, its burgeoning business had required it
    to institute a formal system of cost control. Jan Larson, SunAir’s president, explained:

    Our seasonal demand, as opposed to a need for regular, level production, means that we
    must keep a good line of credit at the bank. Modern cost control and inventory valuation
    procedures enhance our credibility with the bankers and, more importantly, have enabled
    us to improve our operations. Our supervisors have realized the value of good cost
    accounting, and the main office has, in turn, become much more aware of problems in the
    barn.

    SunAir’s manufacturing and warehouse facilities consisted of three historic barns


    converted to make 11-foot “Silver Streak” sailboats. The company’s plans included the
    addition of 15- and 18-foot sail- boats to its present line. Longer-term plans called for
    adding additional sizes and styles in the hope of be- coming a major factor in the regional
    boat market. The “Silver Streak” was an open-cockpit, day sailer sporting a mainsail and
    small jib on a 17-foot, telescoping aluminum mast. It was ideally suited to the many small
    lakes and ponds of the region, and after three years it had become quite popular. It was
    priced at $2,265 complete.

    Manufacturing consisted basically of three processes: molding, finishing, and assembly.


    The molding department mixed all ingredients to make the fiber- glass hull, performed the
    actual molding, and removed the hull from the mold. Finishing included hand additions to
    the hull for running and standing rigging, reinforcement of the mast and tiller steps, and
    general sanding of rough spots. Assembly consisted of the attachment of cleats,
    turnbuckles, drain plugs, tiller, and so forth, and the inspection of the boat with mast,
    halyards, and sails in place. The assembly department also prepared the boat for storage or
    shipment.
    Mixing and molding fiberglass hulls, while manually simple, required a great deal of
    expertise, or “eyeball,” as it was known in the trade. Addition of too much or too little
    catalyst, use of too much or too little heat, or failure to allow proper time for curing could
    each cause a hull to be discarded. Conversely, spending too much time on adjustments to
    mixing or molding equipment or on “personalized” supervision of each hull could cause
    severe underproduction problems. Once a batch of fiberglass was mixed there was no time
    to waste being overcautious or it was likely to “freeze” in its kettle.
    With such a situation, and the company’s announced intent of expanding its product line, it
    became obvious that a standard cost system would be necessary to help control costs and to
    provide some reference for super- visors’ performance.
    Randy Kern, the molding department supervisor, and Bill Schmidt, SunAir’s accountant,
    agreed after lengthy discussion to the following standard costs:

    Materials—Glass cloth—120 sq. ft. @ $2.00 = $240.00


    —Glass mix—40 lbs. @ $3.75 = 150.00
    Direct labor—Mixing—0.5 hr. @ $20.25 = 10.12
    —Molding—1.0 hr. @ $20.25 = 20.25
    Indirect costs—Absorb at $24.30 per hull* = 24.30
    Total cost to mold hull = $444.67
    * The normal volume of operations for overhead derivation purposes was
    assumed to be 450 hulls per month. The estimated monthly indirect cost
    equation was: Budget = $9.72 * hulls + $6,561.

    ANALYSIS OF OPERATIONS
    After several additional months of operations, Bill Schmidt expressed his disappointment
    about the apparent lack of attention being paid to the standard costs. The molders tended to
    have a cautious outlook toward mixing too little or “cooking” too long. No one wanted to
    end up throwing away a partial hull because there was too little glass mix.
    In reviewing the most recent month’s production results, Schmidt noted the following
    actual costs for production of 430 hulls:

    Materials:

    Purchased: 60,000 sq. ft. glass cloth @ $1.80


    20,000 lbs. glass mix @ $4.09

    Used: 54,000 sq. ft. glass cloth


    19,000 lbs. glass mix

    Direct labor: Mixing 210 hrs. @ $21.37


    Molding 480 hrs. @ $20.25

    Overhead: Incurred $11,140

    Before proceeding with further analysis, Schmidt called Kern to arrange a discussion of
    variances. He also told Jan Larson, “Maybe we should look into an automated molding
    operation. Although I haven’t finished my analysis, it looks like there will be unfavorable
    variances again. Kern insists that the standards are reasonable, then never meets them!”
    Larson seemed disturbed and answered, “Well, some variances are inevitable. Why don’t you
    analyze them in some meaningful manner and discuss your ideas with Kern, who is an expert in
    molding whose opinion I respect. Then the two of you meet with me to discuss the whole
    matter.”

    Questions

    1. Determine the molding department’s direct cost variances and overhead


    variances. Why do you think they occurred?
    2. Do you think SunAir’s standards are meaningful? How would you improve them?
    3. Assume that the month’s actual and standard production costs for items other than
    molding hulls amounted to $914.33 per boat, and that 430 boats were sold.
    Prepare a statement of budgeted and actual gross margin for the month, assuming
    planned sales of 450 boats.

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