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Forest Paper Hill Memo

In:

Submitted By apavlik2
Words 489
Pages 2
TO: Consultants
FROM: Alyssa Pavlik
DATE: September 19th 2013
SUBJECT: Forest Hill Cost Systems

Forest Hill is a small company that manufactures paperboard in large reels. Since FHPC is a small company, they are forced to offer an array of products to remain competitive in today’s markets. They can produce 20 different grades of paperboard in both bulk and small-customized orders. In the past, FHPC has recorded many of their costs as conveniently as possible, which has resulted in incorrect allocation of costs. Our team has been hired by Forest Hill because they would like to have a better understanding of their own cost structure especially with the unstable market for their products.

Key Issues
As stated above, FHPC produces 20 different grades of paperboard at any volume requested. This is potentially costing the company far too much money than necessary. For instance, one-half is lost to scrap every single time a grade change is made. Some of the scrap can be recycled but other times it is simply thrown out. If FHPC continuous to make all twenty grades in one month, they are producing far more scrap paper than necessary. Additionally, certain paper cuts cause a substantial amount of depreciation on the knives used in the slitting process resulting in the purchase of more knives than potentially necessary. These certain grades require much more labor time than other grades because the knives causing more need for inspection often damage the paperboard edges. If FHPC continuous to manufacture 20 different paper grades in no specific order, their company will continue to loose a great amount of money.

For convenience, FHPC decided to allocate all of their costs together into one lump sum and calculate overhead rate by multiplying the MOH percentage by the Material costs. The company currently does not have accurate cost estimates on each

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