Financial Case Study: Mendel Paper Company

Mendel Paper Company

Mendel Paper Company
Contribution margin is equal to revenue minus certain costs. The following is the contribution margins by product line for the next fiscal quarter for Mendel Paper Company.
Computer Paper = 30,000 units x $14.00 = $420,000 30,000 units x $6.00 = $180,000 420,000 – 180,000 = $240,000 contribution margin (cm)
Napkins = 120,000 units x $7.00 = $840,000 120,000 units x $4.50 = $540,000 840,000 – 540,000 = $300,000 cm
Place mats = 45,000 x $12.00 = $540,000 45,000 x 3.60 = $162,000 540,000 – 162,000 = $378,000 cm
Poster board = 80,000 x $8.50 =$680,000
240,000 + 300,000 + 378,000 + 480,000 = $1,398,000 – 420,000 – 118,000 = $860,000 total contribution margin
Next one has to find out the contribution margin per unit.
Computer paper can complete six units per hour and they sell them for $14.00 with the variable overhead costing $9 per hour. 6 x 14.00 – 9.00 = $75.00
Companies want to maximize their profits at all times. They have to watch all costs involved in order to maximize those profits. All four products that Mendel Paper Company produces have a variable overhead. The company is concerned about the variable overhead for the one product (place mats) because of how high it is. There is no room for profit for the place mats when the overhead is so high. There are ways for the company to lower this cost so they will have more of a profit from this product. Mendel Paper need to constantly monitor all their costs so they can find other areas that could be decreased. They also need to question each and every aspect of their business and also scrutinize each and every product they make (Fixed and variable cost control: effective cost cutting strategies, 2011). Other ways that they can get the cost down on the place mats. They are hire temporary workers or an outside company to do the work if they can do it cheaper (How to lower fixed cost to achieve financial flexibility,