To: Board of Directors
From: North American South American (NASA) Managerial Accounting Team
RE: NASA Performance Relative to EROW and Strategic Differences In the Rubber Industry
This report seeks to explain the key differences between the NASA (North American South American) and EROW (Europe and rest of world) sales performance over the past nine months. There are several reasons causing the sales performance figures currently stemming from NASA to be incomparable with the EROW numbers, including the current practice of transferring large quantities of regular butyl rubber from the Sarnia to the Antwerp production facilities. As Polysar operates globally, it …show more content…
Currently Polysar employs a static budget system for their budgeted level of rubber sales. However, if more butyl or halobutyl rubber is produced and then sold these will cause a variance as composed to budgeted figures. For example, variable costs will go up, however this may simply be in direct correlation to the increased rubber produced. It is important to be able to analyze if variances are based on volume or cost differences. By tracing the cost variances more closely after implementing this flexible budget system, a better evaluation of management’s performance may be achieved. This can be directly used when considering compensation for managers. INSERT NUMBERS.
Employee Compensation Plan Polysar uses the participative budgetary system, which is directly linked to employee compensation. Although this bottom-up approach to budgeting allows for accurate estimates due to managers with specific rubber cost knowledge being involved, it can cause a conflict of interest that may be costly. It is essential, and highly recommended that the NASA rubber division establish a budgetary committee to review the estimates made to ensure the lower level management has not added in budgetary slack intentionally in an effort to achieve their compensation figures based on meeting these targets. However, even the