Forest Hill Paper Company

640 Words3 Pages
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
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$8,000 + $3,000 + $5,000 + $1,000 + $30,000 = $47,000
$47,000 / 4 = $11,750

8. What is the cost for Forest Hill to slit a reel of paperboard?
A) 50 reels
C) 35 reels
Total slitting cost = $195,000
$195,000 / 85 = $2294.12 to slit one reel

9. Calculate the new volume-based overhead rate after removing grade change and slitting costs.
$1,828,470 - $195,000 - $47,000 = $1,586,470 new total overhead cost
$1,586,470 / $1,741,400 = 0.911 new overhead rate

10. Determine the activity-based costs for grades A-D.
Product
Material Cost
Overhead
Number of reels
Grade Change
Slitting cost
Total cost
A
$4,800
$4,372.80
50
$235
$2,294.12
$11,701.92
B
$5,200
$4,737.20
2
$5,875
$0
$15,812.20
C
$5,600
$5,101.60
35
$335.71
$2,294.12
$13,331.43
D
$7,400
$6,741.40
175
$67.14
$0
$14,208.54

11. Prepare a table that illustrates the percentage change in costs between the volume-based system and the strategic activity-based system.
Product
Volume-Based
Strategic activity-based
Percent Change
A
$9,840
$11,701.92
18.92%
B
$10,660
$15,812.20
48.33%
C
$11,480
$13,331.43
16.13%
D
$15,170
$14,208.54
6.34%

12. What conclusions can you draw from your analysis?
Product
Strategic Cost
Selling Price
Profit
A
$11,701.92
$12,600
$898.08
B
$15,812.20
$13,500
-$2,312.20
C
$13,331.43
$14,200
$868.57
D
$14,208.54
$19,500
$5,291.46

The analysis
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