Canadian Solar (NASDAQ: CSIQ) and other solar panel manufacturers are facing a shortage of a key raw material used in the production of solar panels, polysilicon. Environmental regulators in China shut down several factories, triggering the shortage. The cost of polysilicon has risen by as much as 35% in the past several months. A kilogram of polysilicon went from $14 to $19 near the end of 2017.

In addition to the rise in the cost of polysilicon, the selling price of solar panels has been falling throughout the world.

Assignment:

You are a financial officer of Canadian Solar. The company president has asked you for information on the three specific topics below. In a memo format the questions that were asked and at least one more financial ratio/tool that would be impacted by these changes.

Begin you memo by briefly restating the request that was made. This will help define the scope of the assignment. Your one additional ratio should come after you have covered the requested material.

1. What would be the impact of the increase in the cost of the polysilicon on Canadian Solars gross profit? Explain.

2. What would be the impact of the decrease in the selling price of solar panels on Canadian Solars gross margin? Explain.

3. Assume that Canadian Solar uses a standard costing system for tracking the production of its solar panels. What variance(s), if any, have been impacted by the increase in the cost of polysilicon? Explain