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Winter

12

Polysar Limited
Anthony Mitchell Jeffrey Donarski Andrea Rau Reenajit Kaur

1. Standard Fixed Cost/Tonne = Estimated Annual Total Fixed Costs Annual Demonstrated Plant Capacity NASA NASA Estimated Annual Total Fixed Costs 44625*(12/9) NASA Annual Demonstrated Plant Capacity NASA Standard Fixed Cost/Tonne EROW EROW Standard Fixed Cost/Tonne 1 Tonne transferred from EROW

$59,500,000.00 85,000 $700.00

$620.00

2. Product transfers between divisions for performance accounting purposes were made at standard full cost, representing, for each tonne, the sum of standard variable cost and standard fixed cost. The difference between Production and Sales represents the net amount transferred from NASA to EROW as well as any overage produced but not sold and remaining in FG Inventory. As Choquette states in the interview, since the transfers are at standard cost and are not recorded as revenue, these transfers do nothing for our profit. Also, if they cut back on orders, our profit is hurt through the volume variance. 3. Standard fixed costs (actual) = Standard Fixed Cost/Tonne * Actual Sales (Ex. 1) = $700 * 35,800 = $25,060 Standard fixed costs (budget) = Standard Fixed Cost/Tonne * Budget Sales (Ex. 1) = $700 * 33,000 = $23,100 4. Given the formula, NASA is reliant on EROW estimated demand to determine the Standard Fixed Cost per Tonne and then EROW's actual demand impacts the actual production amount significantly. The decrease in EROW transfers by 7.3 tons accounted for $5110 of the deviation between budget and actual variance. The total deviation is $5250 so NASA is responsible for $150, which relates to its underestimating sales. Volume Variance Production (tonnes) Demonstrated Capacity Standard per tonne Volume variance Actual 47,500 Budget 55,000 Deviation (7,500)

63,750 0.70 11,375

(Exhibit 1) (9 months demonstrated capacity) (Exhibit 2)

63,750 0.70 6,125

0.70 5,250