POLYSAR

Canadas largest chemical company. The Rubber Group accounts for 46% of Polysars 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)

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.

EROWs demand exceeds its manufacturing capacity, so EROW buys butyl from NASA. R U B B E R G R O U P
N S A H R a N I A l o b u A S A LR A N N I A T B u t y l 2A B N P u E R O W P a P l o b L u A N T t y l

1 S PA t y l

L A N E T R T W t y l & H

Introduction to Polysar Standard Costing Variance Analysis for Variable Costs Fixed Overhead Volume Variance Transfer Pricing 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. 1d) Evaluate NASAs performance relative to budget for sales price and volume.

1e) Evaluate NASAs performance relative to budget for plant efficiency, raw materials prices, fixed manufacturing expenses, and non-manufacturing expenses. 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.

1b) Interpret the amount $22,589 on

Exhibit 2, for variable costs.

The $22,589 is in the actual column, and is the variable cost at standard. Therefore, it is based on the actual volume of output (i.e., sales), but uses the budgeted cost of the inputs (feedstocks, chemicals, and energy) per ton of output. The standard cost per ton for raw materials, averaged over the 9 months,was $631 per ton ($22,589/35.8). The $22,589 is equivalent to a flexible budget amount. It is the answer to the question: What should our input costs have been for our actual level of output (sales)? 1c) Interpret the amount $21,450 on Exhibit 2, for variable costs.

This is the static budget number for variable costs (feedstocks, chemicals, energy). Since it is the static budget, it is based on the original, projected level of sales. From Exhibit 1, the projected level of sales was 33,000 tons. Hence, the standard cost per ton for variable costs, as of the beginning of the year, was $650 per ton ($21,450/33). How can the standard cost per ton for variable costs differ from the beginning of the year to the end of the year? I.e.: $650 per ton vs. $631 per ton.

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 price that reflected market prices. Chemical and energy standard costs were established annually.