Costs and Hill Paper Company

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FOREST HILL PAPER COMPANY BACKGROUND INFORMATION 1. How would you classify Forest Hill Paper Company in terms of size and ownership? Forest Hill Paper Company is a small, closely-held company. Relatively few shareholders own the majority shares of the company. It is most likely a private company. 2. What is the nature of the industry in which Forest Hill competes? Forest Hill is a small company, but has to compete against large companies in a commodity market. Paper and paperboard producers operate in a cyclical economic environment, with upswings every three to four years. 3. Identify and discuss the strategy used by Forest Hill to compete in a commodity market. The owners of FHPC have long pursued the strategy of…show more content…
(Prove the overhead rate is 105% of material cost.) Forest Hill traditionally applied overhead to its products as a function of material costs. Average | Material Cost | Total Material Cost | Reels per Batch | per Reel | per Batch | 50 | $ 4,800 | $ 240,000 | 2 | $ 5,200 | $ 10,400 | 35 | $ 5,600 | $ 196,000 | 175 | $ 7,400 | $ 1,295,000 | | | $1,741,400 | | | | | | | | The Overhead Rate=Total Overhead Incurred/Total Material Cost per Batch | | | =$1,828,470/$1,741,400=1.05=105% | | | | | | | | | | | | | | 6. Calculate the volume-based (traditional) cost per reel for grades A-D identified in Exhibit 1. | | | The OH Rate | 1.05 | | Product | | Coated | Material Cost | Allocated | Total Cost | (Grade) | Caliper | / Uncoated | per Reel | Overhead | Per Reel | A | .013 | Coated | $ 4,800 | $ 5,040 | $ 9,840 | B | .014 | Uncoated | $ 5,200 | $ 5,460 | $ 10,660 | C | .015 | Coated | $ 5,600 | $ 5,880 | $ 11,480 | D | .020 | Coated | $ 7,400 | $ 7,770 | $ 15,170 | 7. What is the cost for Forest Hill to conduct a grade change? | | | Grade Change | Depreciation | | $ 8,000 | Labor | | | 3,000
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