To: Denise Toulouse
From: CPA, Investigation Team
RE: Elcar analysis
Variance analysis of Platinum costs
Based on the analysis performed in exhibit 1, Elcar has spent 96558 additional amount is costs,
then the budget, and produced 30 fewer units. The reason for this variance is driven by a higher
cost per gram of platinum, the lack of accountability of wastage.
Wastage should be expensed as cost of goods sold and credit inventory to remove the asset from
the balance sheet.
Elcar is currently determining whether to cancel the K3Press contract as units required to be
purchased compared to units required by the company are significantly higher.
As per exhibit 2, the quantitative analysis suggests continuing with the contract as this results in
lowest costs for Elcar. Elcar can cancel the contract today, and purchase the 2000 units required
in 2021 at the market price of $160 per unit. This results in a total cancelling cost of 535,000. If
they keep the contract, and sell the 5900 units they don't require in operations, the total cost of
the contract is $527,220.
From a qualitative perspective, it is also beneficial to continue with the contract as Elcar may
need to do business with K3Press in the future, and don't want a bad relationship with the
supplier. If the contract is cancelled and additional units are purchased from another supplier,
Elcar cannot be assured the quality and timing of units required will be ideal.
Key Measures Report
NHC's objective with its investment in Elcar is to make a 25% return and potentially sell the
business. NHC wants to better monitor Elcar's financial results and whether to further fund Elcar
Therefore, NHC is interested in key measures related to profit and cashflows.
Number of vehicles ordered, number of staff and grams of platinum purchased do not provide
with any useful information regarding funding. In order to determine whether El car requires
funding, NHC is comparing cash in vs cash out, and the excess or deficiency that exists. The
total costs of vehicles ordered, salaries, and platinum purchased provide a more clear picture of
The current ratio also assists in providing an understanding of the financial position of the
company, as the ability to pay debt is expressed. Other key measures which would assist in
NHC's objectives would be accounts receivables balances, debt repayments, and financing