Questions for Polysar Limited: Given the fixed cost per tonne of $700. The underabsorbed fixed cost is 63.75 (9/12 of 85) - actual production of 47.5 tonnes x 700 = $11,375.

1. How would you present the NASA results to the Board of Directors? -

• 1a. What can you say about their revenue vs. budget for the nine months ended 9/30/86? How much of their budget variance is due to price vs. volume?
• 1b. For variable cost, what does the efficiency variance represent? Is it good?
• 1c. For the fixed cost variances, how do you describe the spending variance? Is it good?
• 1d. For the fixed cost volume variance:

i. can you calculate the amount that was planned or budgeted? (assume production volumes are constant across the year)

ii. Can you calculate the amount of the fixed cost volume variance that was due to EROW volume shortfalls?

iii. Can you calculate the amount of the fixed cost volume variance that was due to other (non-EROW) production shortfalls?

iv. Given the answer to iii above, how do you evaluate the performance of NASA for this time period?

v. What is the NASA profit performance with the fixed cost volume variance removed?

2. With the current accounting (costing) and measurement/bonus systems, what dangerous incentives are being created for the EROW team?

3. Based on revenue per tonne and variable cost per tonne only, which plant is contributing more per tonne?

4. What changes would you propose to Polysar in the following regards:

• i. Is it beneficial to track NASA and EROW net contributions separately
• ii. Should bonuses continue to be paid on division performance vs. the budget?
• iii. Are there other ways to consider managing the fixed costs of overcapacity?