Case Study: Forest Hill Paper Company
1. How would you classify Forest Hill Paper Company in terms of size and ownership? I would classify Forest Hill Paper Company (FHPC) as a “small paperboard manufacturer that produces a broad line of paperboard in large reels.”
2. What is the nature of the Industry in which Forest Hill competes? Due to customer buying habits, FHPC competes in a cyclical economic environment, with upswings every three to four years. The current paperboard market is mature and declining with market share trending more towards plastic and other environmentally friendly grades of paperboard.
3. Identify and discuss the strategy used by Forest Hill to compete in a commodity market. The strategy used by FHPC is to offer a full range of both products and services in order to “create a niche based on service and rapid response to customer needs.”
4. What are some examples of complexity that drive overhead costs for Forest Hill? Some examples of the complexities that drive overhead costs are: Broad range of paperboard products and services
Raw material processing process (debarking, digesting, and washing and screening of pulp) Slitting of reels for food processors
5. How does the current system capture manufacturing costs and assign then to products? The current system captures manufacturing costs and assigns them to products by multiplying the average number of reels per batch by the material cost per reel. Totaling those numbers and dividing into the total overhead.
A) 50 rolls x $4,800 = $240,000
B) 2 rolls x $5,200 = $10,400
C) 35 rolls x $5,600 = $196,000
D) 175 rolls x $7,400 = $1,295,000
Total A-D = $1,741,400
$1,741,400 x 1.05 = $1,828,470
6. Calculate the volume-based (traditional) cost per reel for grades A-D identified in Exhibit 1. A) $4,800 x 1.05 = 5,040 + 4,800 = $9,840
B) $5,200 x 1.05 = 5,460 + 5,200 = $10,660
C) $5,600 x 1.05 = 5,880 + 5,600 = $11,480
D) $7,400 x 1.05 = 7,770 + 7,400...
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