TEAM 8 POLYSAR CASE

Team Members:

Lamia Ben Fdhila Brian Mogova Atef Zouari Fakhri Hatira Hatem Mana Reyad Hobba

What is good about Polysar accounting : The standard costing system is explicit enough to enable the company make clear analysis of mismatching (volume , price variances) Allows comparisons across divisions performances therefore facilitates internal benchmarking and internal analysis and there implement corrective actions.

The use of transfer pricing may have tax advantages for the company
The standard costing system was very convenient to Polysar and easy to estimate due to the few number of product components

A part of the standard cost computed by Polysar, (feedstock ) is uptdated on a monthly basis - so the cost is updated and reflects reality ( worldwide market costs).

What is bad about Polysar accounting system: The standard cost is calculated once a year and if it is not updated, it will no longer reflect reality, and therefore can give an inaccurate picture of the companys performances in terms of profitability. Discrepancy between methods of computing the budget & actual figures There is no standard method for accounting costing computing: Feedstock prices indexed to the market price Chemical and energy costs are estimated once a year Difficult to keep up with the market price changing Cost might not be accurate: Risk of over/under estimation of the costs (part of the cost which is updated on an annual basis while real-time variances begin to grow further and further apart from the assumed cost. In cases where transfer pricing is done, the method does not allocate adequately fixed costs In the case of comparisons between the divisions. The method promotes profit of one at the expense of the other Transfer pricing does not take into consideration depreciation and compensation
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Our Recommandations: 1- The Transfer Pricing should be calculated on one of the following options: Market-Based Transfer Price Cost-Based Transfer Price Negotiated Transfer Price Fair Transfer Price 2- Implement a dual marginal costing and ABC (activity based costing) system to enable a different view at cost 3- Allocate depreciation and compensation benefits to EROW to reflect reality of where the business performance is.