Mendel Paper Company

1300 Words6 Pages
Mendel Paper Company Intro In the case of Mendel Paper Company which produces four basic paper products lines at one of its plants: computer paper, napkins, place mats, and poster board. Although the plant superintendent, Marlene Herbert is pleases with increased sales he is also concerned about the costs. The superintendent is concerned with the high fixed cost of production, the increases in fixed overhead and even variable overhead. He feels that the production of place mat should be discontinued. His reason for the discontinuation is that the special printing is driving up the variable overhead to the point where the company may not find it profitable to continue with the line. After reviewing the future predictions of the…show more content…
If Marlene Herbert were to discontinue place mats, he would miss $270,000 that will go toward Mendel paper company fixed cost. The company currently has a plant overhead that is estimated at $420,000 for the quarter. In addition to the fixed plant overhead, the plant incurs fixed selling and administrative expenses per quarter of $118,000. This draws the company to a total fixed cost of $538,000. If Marlene Herbert were to discontinue the second highest contributor to the fixed cost, he would need to increase the volume of computer paper and lower material cost to help pull the contribution margin of the lowest product up to help support the lost of a whole product line. Question 2 2. Revised Computer paper Napkins Place mats Poster board Total Volume 35000 120000 45000 80000 Selling price 14 7 12 8.5 Material Cost $7.00 4.5 $4.00 2.5 Units per hour 6 10 5 4 Variable overhead 9 6 12 8 Variable overhead per unit 1.5 .6 2.4 2 Total sales 490000 840000 540000 680000 2550000 Material cost 245000 540000 180000 200000 Variable overhead 52500 72000 108000 160000 Contribution margin 192500 228000 252000 320000 992500 CM per unit 5.50 1.90 5.60 4.00 In this table, it reflects the changes in fixed plant overhead from $420,000 to $378,000. The company still has the fixed selling and administrative expense per quarter of $118,000. The new company fixed overhead is now at $496,000 from the past $538,000 ($42,000) change from past to
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