Polysar Case

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Polysar Ltd.

AGENDA
Polysar Ltd.
• Introduction to Polysar • Standard Costing • Variance Analysis for Variable Costs • Fixed Overhead Volume Variance • Transfer Pricing

AGENDA
Polysar Ltd.
• Introduction to Polysar • Standard Costing • Variance Analysis for Variable Costs • Fixed Overhead Volume Variance • Transfer Pricing

POLYSAR
• Canada’s largest chemical company. • The Rubber Group accounts for 46% of Polysar’s sales. • Primary products for this group are butyl and halobutyl. • Principal customers for these products are tire manufacturers. • Rubber Group has two divisions – NASA (North America & South America) – EROW (Europe & elsewhere)

POLYSAR
• Butyl is manufactured by NASA at its Sarnia 2 plant, and by EROW at its Antwerp plant. • Sarnia 2 is a relatively new facility, dedicated entirely to butyl production. • The Antwerp plant makes both butyl and halobutyl. • EROW’s demand exceeds its manufacturing capacity, so EROW “buys” butyl from NASA.

POLYSAR
RUBBER GROUP

NASA

EROW

SARNIA 1 PLANT Halobutyl

SARNIA 2 PLANT Butyl

ANTWERP PLANT Butyl & Halobutyl

AGENDA
Polysar Ltd.
• Introduction to Polysar • Standard Costing • Variance Analysis for Variable Costs • Fixed Overhead Volume Variance • Transfer Pricing

POLYSAR
1a) What evidence do we have that Polysar is on a standard costing system? 1b) Interpret the amount $22,589 on Exhibit 2, for variable costs. 1c) Interpret the amount $21,450 on Exhibit 2, for variable costs.

POLYSAR
1d) Evaluate NASA’s performance relative to budget for sales price and volume. 1e) Evaluate NASA’s performance relative to budget for plant efficiency, raw materials prices, fixed manufacturing expenses, and non-manufacturing expenses.

POLYSAR
1a) What evidence do we have that Polysar is on a standard costing system?

Product Costing and Transfer Prices –
Butyl rubbers were costed using standard rates for variable and fixed costs. Variable costs included feedstocks, chemicals, and energy. Standard variable cost per ton of butyl was calculated by multiplying the standard utilization factor (i.e., the standard quantity of inputs used) by a standard price established for each unit of input. Since feedstock prices varied with worldwide market conditions and represented the largest component of costs, it was impossible to establish standard input prices that remained valid for extended periods. Therefore, the company reset standard costs each month to a price that reflected market prices. Chemical and energy standard costs were established annually.

POLYSAR
1b) Interpret the amount $22,589 on Exhibit 2, for variable costs.

E x hib it 2
N A S A R U B B E R D IV IS IO N R e g u la r B u t y l R u b b e r S t a t e m e n t o f N e t C o n t r ib u t io n S e p te m b e r 1 9 8 6 9 M o n th s e n d e d S ep t. 3 0 , 1 9 8 6 A c tu al ( ‘ 0 0 0 's ) S a le s R e v e n u e - T h i r d P a r t y - D ive r sifie d P r o d u c t G ro u p - T o tal D e l i ve ry C o s t N et S ales R e ve n u e V a ri a b l e C o s t s S tan d ard C o s t A d ju stm e n ts E f fic ie n c y V a r ia n c e T o tal G ro s s M a rg i n - $ 6 5 ,8 1 6 6 ,0 - 2 ,7 6 3 ,2 7 6 3 9 3 2 0 2 3 9 9 4 1 4 B u dget ( ‘0 0 0 's ) 6 1 ,0 2 6 1 ,2 - 2 ,6 5 8 ,6 5 1 6 0 6 0 0 0 0 0 D e viatio n ( ‘ 0 0 0 's ) 4 ,8 2 5 4 ,7 2 19 4 ,5 7 - 1 ,1 3 5 24 84 2 0 2 3 9 9 4 1 4

-2 2 ,5 8 5 24 -2 2 ,2 9

-2 1 ,4 5 0 -2 1 ,4 5 0 3 7 ,2 1 0 -2 3 ,1 0 0 8 0 - 6 ,1 2 5 -2 9 ,1 4 5 8 ,0 6 5 - 4 ,0 0 0 21 0 5 0 - 4 ,1 6 0 3 ,9 0 5 -1 ,9 0 0 2 ,0 0 5

4 0 ,9 4 5 -2 5 ,0 1 4 -1 1 ,3 -3 5 ,7 5 ,1 - 4 ,1 2 2 - 4 ,1 6 6 9 7 6 7 6 2 0 7 0 8 8 5 9 6 3 2 8 7

3 ,7 3 5 - 1 ,9 6 8 49 - 5 ,2 5 - 6 ,6 2 - 2 ,8 8 16 1 15 1 0 8 8 0 4 9 3 2 8 7

F i x e d C o s ts S tan d ard C o s t A d ju stm e n ts S p e n d i n g V a ri a n c e V o lu m e V arian ce T o tal G ro s s P ro fi t - $ P e r io d C o s t s A d m i n is tr a t io n , S e l li n g , D is tr i b u t io n T e ch n ic al S ervic e...
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