Case: 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 ...view middle of the document...
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 know 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 supervisors’ 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
- Glass miz — 40lbs.
Direct labor — Mixing — 0.5 hr.
- Molding — 1.0 hr.
Indirect costs — Absorb at $24.30 per hull *
Total cost to mold hull | @ $2.00
@ $20.25 | =
= | $240.00
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...