Fixed Cost and Ms Sandra Lazzarini Essay

Submitted By Shengxi-Zhang
Words: 4085
Pages: 17

Harvard Business School

Rev. February 15, 2000

Polysar Limited
As soon as Pierre Choquette received the September Report of Operations for NASA Rubber
(Exhibits 1 and 2), he called Alf Devereux, Controller, and Ron Britton, Sales Manager, into his office to discuss the year-to-date results. Next week, he would make his presentation to the Board of
Directors and the results for his division for the first nine months of the year were not as good as expected. Pierre knew that the NASA management team had performed well. Sales volume was up and feedstock costs were down resulting in a gross margin that was better than budget. Why did the bottom line look so bad?
As the three men worked through the numbers, their discussion kept coming back to the fixed costs of the butyl rubber plant. Fixed costs were high. The plant had yet to reach capacity. The
European Division had taken less output than projected.
Still, Choquette felt that these factors were outside his control. His Division had performed well—it just didn’t show in the profit results.
Choquette knew that Henderson, his counterpart in Europe, did not face these problems. The
European rubber profits would be compared to those of NASA. How would the Board react to the numbers he had to work with? He would need to educate them in his presentation, especially concerning the volume variance. He knew that many of the Board members would not understand what that number represented or that it was due in part to the actions of Henderson’s group.
Pierre Choquette, Alf Devereux, and Ron Britton decided to meet the next day to work on a strategy for the Board presentation.

Polysar Limited
In 1986, Polysar Limited was Canada’s largest chemical company with $1.8 billion in annual sales. Based in Sarnia, Ontario, Polysar was the world’s largest producer of synthetic rubber and latex and a major producer of basic petrochemicals and fuel products.
Polysar was established in 1942 to meet wartime needs for a synthetic substitute for natural rubber. The supply of natural rubber to the Allied forces had been interrupted by the declaration of
Professor Robert Simons prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The financial data have been developed to illustrate the issues involved and are not representative of the true financial results of the company.
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This document is authorized for use only in Managerial Accounting and Control by Ms Sandra Lazzarini at University of Queensland from October 2014 to November 2014.


Polysar Limited

war against the United States by Japan in December 1941. During 1942 and 1943, ten synthetic rubber plants were built by the Governments of the United States and Canada including the Polysar plant in
After the war, the supply of natural rubber was again secure and the nine U.S. plants were sold to private industry or closed. Polysar remained in operation as a Crown Corporation, wholly owned by the Government of Canada. In 1972, by an Act of Parliament, the Canada Development
Corporation (CDC) was created as a government-owned, venture capital company to encourage
Canadian business development; at that time, the equity shares of Polysar were transferred to the
Canada Development Corporation. In 1986, Polysar remained wholly-owned by the CDC; however, in a government sponsored move to privatization, the majority of