Polysar Limited Case
| Polysar Limited |
Memo
| |
For the first nine months in 1986, NASA rubber division generated a sale of $66 million which exceeded the budgeted sales by $4.7 million. At the same time, NASA created a positive gross margin of 40 million which exceeded the budgeted gross margin by $3.7 million. However, they experienced a net loss of .876 million, which was $2.8 million lower than the budgeted amount.
| Actual | Budget | Difference | | ($ '000) | ($ '000) | ($ '000) | Sales | 66,032 | 61,260 | 4,722 | Gross margin | 40,945 | 37,210 | 3,735 | Net profit | -876 | 2,005 | -2,881 |
To better understand these financial figures, our group first conducted a causal analysis.
NASA Causal Analysis | | Sales | | Profits | Actual | 63239 | | -876 | Budget | 58660 | | 2005 | Actual B/W budget | 4579 | | -2881 | Causal analysis | | | | Third party sales | 5180 | | 2081 | Pricing | -358 | | -358 | Diversified/Delivery | -243 | | -243 | Variances | | | | Variable cost adjustment | | | 54 | Variable efficiency variance | | | 241 | Fixed cost adjustment | | | 88 | Fixed spending variance | | | 498 | Production volume variance | | | -5250 | Interest | | | 25 | Period costs | | | -17 | Total | 4579 | | -2881 |
As we can see from the above table, NASA achieved a favorable variance in sales, but not in profits. Therefore, one might start wondering if NASA experienced a problem in cost control. Among all the variances listed above, we can see that the production volume variance is the most unfavorable.
Next our group conducted a fixed overhead variance analysis. Based on our calculation, the volume variance calculated in Exhibit 2 is accurate. The spending variance is positive, which is a good thing. However, the unfavorable production volume variance needs management 's attention.
Actual cost | Flexible budget: | Allocated | Incurred | Same Budgeted | | | | |
Memo
| |
For the first nine months in 1986, NASA rubber division generated a sale of $66 million which exceeded the budgeted sales by $4.7 million. At the same time, NASA created a positive gross margin of 40 million which exceeded the budgeted gross margin by $3.7 million. However, they experienced a net loss of .876 million, which was $2.8 million lower than the budgeted amount.
| Actual | Budget | Difference | | ($ '000) | ($ '000) | ($ '000) | Sales | 66,032 | 61,260 | 4,722 | Gross margin | 40,945 | 37,210 | 3,735 | Net profit | -876 | 2,005 | -2,881 |
To better understand these financial figures, our group first conducted a causal analysis.
NASA Causal Analysis | | Sales | | Profits | Actual | 63239 | | -876 | Budget | 58660 | | 2005 | Actual B/W budget | 4579 | | -2881 | Causal analysis | | | | Third party sales | 5180 | | 2081 | Pricing | -358 | | -358 | Diversified/Delivery | -243 | | -243 | Variances | | | | Variable cost adjustment | | | 54 | Variable efficiency variance | | | 241 | Fixed cost adjustment | | | 88 | Fixed spending variance | | | 498 | Production volume variance | | | -5250 | Interest | | | 25 | Period costs | | | -17 | Total | 4579 | | -2881 |
As we can see from the above table, NASA achieved a favorable variance in sales, but not in profits. Therefore, one might start wondering if NASA experienced a problem in cost control. Among all the variances listed above, we can see that the production volume variance is the most unfavorable.
Next our group conducted a fixed overhead variance analysis. Based on our calculation, the volume variance calculated in Exhibit 2 is accurate. The spending variance is positive, which is a good thing. However, the unfavorable production volume variance needs management 's attention.
Actual cost | Flexible budget: | Allocated | Incurred | Same Budgeted | | | | |