Essay about Polysar Ltd.

2839 Words Apr 14th, 2009 12 Pages
BACKGROUND
Polysar Limited is Canada’s largest chemical company. It is structured into 3 groups, namely, basic petrochemicals, rubber, and diversified products. Rubber Group is the largest of the three operating units of Polysar Limited. The primary users of its products, such as butyl and halobutyl, are manufacturers of automobile tires; other users are from various industries. In 1986, Rubber group contributed 0.8 billion which is 46 percent of the company annual sale. The operation of the group is divided into four divisions, NASA (North America and South America) and EROW (Europe and rest of the world), Research department and Global Marketing department. NASA and EROW operate as profit centers each produce butyl and halobutyl
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Having a negative figure means the production is below demonstrated capacity.
• The best way to eliminate the variance is to produce close to 85,000 tonnes. However, from the Statistics and Analysis, the management only expected to produce around 55,000 tonnes and transfer 19,500 tonnes to EROW. This was way less than the standard, not to mention the actual production was even lower. Accordingly this created a material difference of $5.25 million on volume variance.

DETAILED ANALYSIS: For the purpose of a more detailed, step-wise analysis, let’s examine the different cost components of the production process at the two plants (using exhibits 1, 2 and 7) and compare them to understand exactly where the NASA plant needs to concentrate in order to perk up its bottom line. According to the case, butyl rubbers were accounted for using standard rates for variable and fixed costs.
Exhibit 2 gives us the actual standard variable cost at $22,589. This is based on the actual sales. Therefore, the standard actual cost per ton of raw materials for 9 months is $631 ($ 22,589/ 35.8). The estimated amount for variable standard costs of $ 21,450 is based on bonus sales. Thus, the standard budgeted variable cost per ton is $650 ($ 21,450/ 33). The difference between the budgeted and actual variable cost exists because input

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