Sunair Boat Builders, INC.

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Executive Summary

Many companies have discovered the importance of cost control as a means of survival in fiercely competitive markets in the early 2000. By implementing an organized, companywide process for controlling costs, a firm can reverse its sinking earnings trend and recover its market position.

Standard costs are established and revised each period during the budgeting process. Standard costs are continually reviewed and periodically revised if significant changes occur in production methods or in the prices paid for material, labor, and overhead. The level of production output plays an important role in determining cost standards. For instance, grossly underutilized production facilities often experience varying degrees of
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= $103,200

Materials Usage Variance = $ 4,800 Unfavorable

Glass Mix

SP x AQU = $3.75 x 19,000lbs = $ 71,250

SP x SQ = $3.75 x 17,200lbs = $ 64,500

MUV = $ 6,750 Unfavorable

Labor Rate and Efficiency Variance

AR = Actual Rate

SR = Standard Rate

AH = Actual Hours

SH = Standard Hours

LRV = Labor Rate Variance

LEV = Labor Efficiency Variance

Labor Rate Variance

Direct Labor

Mixing

AR x AH = $21.37 x 210hrs = $4,487.70

SR x SH = $20.25 x 210hrs = $4,252.50

LRV = $ 235.20 Unfavorable

Molding

AR x AH = $20.25 x 480hrs = $9,720

SR x AH = $20.25 x 480hrs = $9,720

LRV = 0

Labor Efficiency Variance

Direct Labor

Mixing

SR x AH = $20.25 x 210hrs = $4,252.50

SR x SH = $20.25 x 215hrs = $4,353.75

LEV = $ 101.25 Favorable

Molding

SR x AH = $20.25 x 480hrs = $9,720

SR x SH = $20.25 x 430hrs = $8,707.50

LEV = $1,012.50

OverHead Cost Variance

Production Volume Variance = Absorbed - Budgeted

= $10,449 - $10,740

= $ 291.60 Unfavorable

Spending Variance = Budgeted - Actual

= $10,740 - $11,140

= $400 Unfavorable

**Absorption Rate = $24.30/hull

x 430

= $10,449

**Flexible Budget = $9.72 x 430 + $6,561

= $4,179.60 + $6,561

= $10,740.60

The price variance is favorable in the glass cloth but unfavorable in the glass mix. These variances may be attributed to a number of

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