Chapter 11, Problem 11.CD

CURRENT DESIGNS

The executive learn at Current Designs has gathered to evaluate the company's operations for the last month. One of the topics on the agenda is the special order from Huegel Hollow, which was presented in CD2. Recall that Current Designs had a special order to produce a batch of 20 kayaks for a client, and you were asked to determine the cost of the order and the cost per kayak.

Mike Cichanowski asked the others if the special order caused any particular problems in the production process. Dave Thill, the production manager, made the following comments: “Since we wanted to complete this order quickly and make a good first impression on this new customer, we had some of our most experienced type I workers run the rotomold oven and do the trimming. They were very efficient and were able to complete that part of the manufacturing process even more quickly than the regular crew. However, the finishing on these kayaks required a different technique than what we usually use, so our type II workers took a little longer than usual for that part of the process.”

Deb Welch, who is in charge of the purchasing function, said, “We had to pay a little more for the polyethylene powder for this order because the customer wanted a color that we don't usually stock. We also ordered a little extra since we wanted to make sure that we had enough to allow us to calibrate the equipment The calibration was a little tricky, and we used all of the powder that we had purchased. Since the number of kayaks in the order was fairly small, we were able to use some rope and other parts that were left over from last year's production in the finishing kits. We've seen a price increase for these components in the last year, so using the parts that we already had in inventory cut our costs for the finishing kits.”

Instructions

(a) Based on the comments above, predict whether each of the following variances will be favorable or unfavorable. If you don't have enough information to make a prediction, use “NEI” to indicate “Not Enough Information.”

(1) Quantity variance for polyethylene powder.

(2) Price variance for polyethylene powder.

(3) Quantity variance for finishing kits.

(4) Price variance for finishing kits.

(5) Quantity variance for type I workers.

(6) Price variance for type I workers.

(7) Quantity variance for type II workers.

(8) Price variance for type II workers.

(b) Diane Buswell examined some of the accounting records and reported that Current Designs purchased 1,200 pounds of pellets for this order at a total cost of $2,040. Twenty (20) finishing kits were assembled at a total cost of $3,240. The payroll records showed that the type I employees worked 38 hours on this project at a total cost of $570. The type II finishing employees worked 65 hours at a total cost of $796.25. A total of 20 kayaks were produced for this order.

The standards that had been developed for this model of kayak were used in CD2 and are reproduced here. For each kayak:

54 pounds of polyethylene powder at $1.50 per pound

1 finishing kit (rope, seat, hardware, etc.) at $170

2 hours of type 1 labor from people who run the oven and trim the plastic at a standard wage rate of $15 per hour

3 hours of type II labor from people who attach the hatches and seat and other hardware at a standard wage rate of $12 per hour.

Calculate the eight variances that are listed in part (a) of this problem.