http://www.termpaperwarehouse.com/essay-on/Forest-Hill-Case/60200
1. How would you classify Forest Hill Paper Company in terms of size and ownership?
Forest Hill Paper Company is a small, closely hold paperboard manufacturer that produces a board line of paperboard in large reels.
2. What is the nature of the industry in which Forest Hill competes?
FHPC competes in a cyclical economic environment, with upswings every three to four years. The current market is mature and declining with a recent trend towards plastic and a more environmentally friendly grade of recycled paperboard.
3. Identify and discuss the strategy used by Forest Hill to compete in a commodity market.
The strategy used by Forest Hill to compete is to use a differentiation strategy. They have been offering a full range of both products and services, trying to create a niche based on service and rapid response to customer needs.
4. What are some examples of complexity that drive overhead costs for Forest Hill?
Examples of complexity that are driving overhead costs are:
* Large variability of output; the demand is greater than the production capacity during a boom and decreases during down times * FHPC produces a huge variety of products that increase costs due to the processing required * Several steps with the machine causing costs to increase * Some costs are related to direct materials, while others depend on the batches
5. How does the current system capture manufacturing costs and assign them to products? (Prove the overhead rate is 105% of material cost.)
Avg Reels Per Batch | Material Cost per Reel | Total |
50 | 4800 | 240 000 |
2 | 5200 | 10 400 |
35 | 5600 | 14 200 |
175 | 7400 | 19 500 |
Total $1 741 400
Multiply it by 1.05= $1 828 470
6. Calculate the volume-based (traditional) cost per reel for grades A-D identified in Exhibit 1.
