Mendel Paper Company

1371 Words6 Pages
Mendel Paper Company Mendel Paper Company has been doing relatively well with the sales of computer paper, napkins, place mats, and poster board. With more people eating out, the demand for napkins and place mats have increased. Computer paper and poster boards have slowly increased in demand as well. However, there is concern at the company with the fixed cost of operations. Marlene Herbert, the plant superintendent, said, “As we have automated our operation, we have experienced increases in fixed overhead and even variable overhead. And, we will have to add more equipment since it appears that we need even more plant capacity. We are operating over our normal capacity as it is.” (Case 2B). With the new production costs added in, will…show more content…
The break-even point in units for computer paper is $52,000.00. Meaning to break-even, you have to sell $52,000.00 of units of computer paper. “The margin of safety, expressed in either dollars or a percentage, shows how much sales can be reduced without sustaining losses” (Schneider, 2012). The formula to find margin of safety in dollars is: margin of safety in dollars equals the actual (or expected) costs minus the break-even costs. So in the case of computer paper. The actual cost of $30,000.00 minus the break-even point of $52,000.00 gives you the margin of safety of -$22,000.00. Meaning you can cut the sales of computer paper by $22,000.00 and not sustain a loss. To find the break-even point for napkins, you use the same formula. The fixed cost is still $420,000.00. The selling price of napkins is $7.00. The variable cost is $4.50. $7.00 minus $4.50 is $2.50. So then you take $420,000.00 and divide it by $2.50 to find the breaking point of $168,000.00. The company will have to sell $168,000.00 to break even in sales. The margin for safety for napkins is -$48,000.00. This is found by subtracting the actual or expected cost of $120,000.00 by the break-even point of $168,000.00. You can cut sales by $48,000.00 and not sustain a loss. The break-even point for place mats is $50,000.00. This is found by the selling price per unit is $12.00. The variable price per unit of place mats is $3.60. $12.00 minus $3.60 equals $8.40. You then divide
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