Polysar Case

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

2.) What is the ‘relevant range’ for the cost structure? In other words, at what volume might you expect the fixed and variable costs to change appreciably?

The product cost per unit under absorption costing is $15.00 and under variable costing are 10.60.

Variable Cost defines the cost of a single assembled product based on the materials consumed and labor invested directly in unit production. To illustrate our point, we can say that making a single baked potato with all of the fixings will cost $3.00 to produce (potato, sour cream, chives, plate, fork, napkin and labor). If we decide to go into the baked potato business, we must then sell these potatoes for at least $3.00 per unit. Any less would cause us to lose money on the endeavor. This cost cannot be made up by increasing volume of sales. Judy Koch discussed the fact that bulk purchases can benefit you reduce these variable costs. If we decided to purchase potato-making materials in larger quantities and hired more workers to produce these products, we could

To estimate variable costs, Tables F and I are needed. Table F shows the cost of goods sold averages 77.1% of sales (variable cost); Table I shows an average wholesale price for the seven competing brands of about $3.16 per six pack (about one gallon).

The Kenton Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:

Taking into account of transportation and lead-time, the two international companies prices exceeded the prices of the two domestic after added transportation and duties/tariffs. after the financial and cost analysis, SureTech and E-Drive seems to be the best candidates. However, SureTech has a quick ratio of .7 as well as a smaller firm, E-Drive will be chosen with above average ratios, fastest lead time, 10 minutes away, and solid

For NASA division, whether or not actual transferring to/from EROW will have no direct effect on its financial results, but the planned amount will do. Volume variance in NASA is computed as taking the difference between capacity 63,750 (annual capacity of 85,000 adjusted to 9 month) and actual production 47,500, and times standard fixed cost per unit $700 per tonne. Actual production is based on budget generated by EROW in previous year. The more EROW budgeted transferring from NASA, the less volume variance for NASA, thus the more favorable of the result.

After modifying the Fixed Cost Volume Variance, below we have a new Statement of Net Contribution with a positive Net Contribution of $4,414, which makes NASA as a division appear more profitable to Polysar.

If we compare the old job costing method with the Activity based costing method we can see in the table below that the activity base rate gives us a much more accurate insight in allocating the manufacturing overhead costs. In fact, the activity based overhead calculation shows us that the activity rates for Valves and Pumps are lower than the rates used in plantwide production rates, but the activity based rate for Flow Controllers is around 50% higher than the cost calculated in the job costing method. The reason for this difference in our opinion can be traced back to the high receiving and production control costs as well as packaging &

• This cost method does not provide the best system for JDCW’s cost allocation. By using only three overhead rates the present system grossly undermines the true production costs since other activities of the production process are not acknowledged.

All the costs by a company can be broken into two categories, fixed costs and variable costs. Costs that are independent of output are called fixed costs. Fixed costs remain constant throughout the relevant range and are usually considered sunk for the relevant range. Buildings and machinery are included inputs that cannot be adjusted in the short term. They are only fixed in relation to the quantity of production for a certain time period. The cost of all inputs is variable, in the long run.

Assigning the overhead costs to the products shows how profitable the products are after deducting all cost. However, it is important to find the appropriate method of overhead cost allocation. In Sippican’s case the traditional accounting method is used, which does not reflect the real resource usage of the different product lines. The correct method in this case would be to apply the time-driven ABC approach for cost allocation. Such method apart from showing the actual profitability after all cost deductions also depicts the differences in resource usage rates between the products and, thus, allows for identification of cost drivers. A contribution margin

Variable Cost per Unit = ( $59,000 − $38,000 ) ÷ ( 3,000 − 1,250 ) = $12 per unit

complex. The basic objective here is that of taking the cost of expected production operations in the