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Polysar Case Study Solution Report

Polysar Limited Case Essay

WordsNov 18th, Pages


Background Polysar Limited is Canada’s largest chemical company. Its Rubber Group accounts for 46% of Polysar’s sales. The primary products for this group are butyl and halobutyl and the principal customers for these products are tire manufacturers. The rubber Group has two divisions: NASA (North America & South America) and EROW (Europe & elsewhere). There is product transferring between NASA and EROW and the Vice President of NASA is required to present the performance results to the Board of Directors and explain why the bottom line is lower than expected. Performance of…show more content…

There would be no budgeted volume variance, since $/tonne x 55, tonnes = $44,K After modifying the Fixed Cost Volume Variance, below we have a new Statement of Net Contribution with a positive Net Contribution of $4,, which makes NASA as a division appear more profitable to Polysar.

Sales and Production Strategy for EROW, NASA and the Rubber Group The best strategy for the EROW Division is to produce at capacity, which they are already doing while they even continue to push the capacity limit. The best strategy for the NASA Division is to produce as much as possible and close to capacity to cover their fixed costs. It is profitable for the Rubber group as a whole to continue producing butyl and halobutyl. Why the EROW Division would order more

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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 , Rubber group contributed 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…show more content…

Having a negative figure means the production is below demonstrated capacity.
• The best way to eliminate the variance is to produce close to 85, tonnes. However, from the Statistics and Analysis, the management only expected to produce around 55, tonnes and transfer 19, 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 $ 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, This is based on the actual sales. Therefore, the standard actual cost per ton of raw materials for 9 months is $ ($ 22,/ ). The estimated amount for variable standard costs of $ 21, is based on bonus sales. Thus, the standard budgeted variable cost per ton is $ ($ 21,/ 33). The difference between the budgeted and actual variable cost exists because input

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