Costs and Hill Paper Company

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FOREST HILL PAPER COMPANY
BACKGROUND INFORMATION 1. How would you classify Forest Hill Paper Company in terms of size and ownership?
Forest Hill Paper Company is a small, closely-held company. Relatively few shareholders own the majority shares of the company. It is most likely a private company. 2. What is the nature of the industry in which Forest Hill competes?
Forest Hill is a small company, but has to compete against large companies in a commodity market. Paper and paperboard producers operate in a cyclical economic environment, with upswings every three to four years. 3. Identify and discuss the strategy used by Forest Hill to compete in a commodity market.
The owners of FHPC have long pursued the strategy of …show more content…
What is the cost for Forest Hill to slit a reel of paperboard? As shown in Exhibit 1, only products A and C are routinely slit. For purposed of your analysis, assume the slitting equipment must be set up and adjusted between each reel slit.
The cost for Forest Hill to slit a reel of paperboard
=Total Slitting Cost/Total reel numbers of slitting=195,000/ (50+35) =$2,294 9. Calculate the new volume-base overhead rate after removing grade change and slitting costs. | | | Net | Depreciation | | $ 722,000 | Labor | | | 272,000 | Energy | | | 415,000 | Other | | | 177,470 | Unrecoverable Clay and Chemicals | | from Grade Changeovers | 0 | Total | | | $ 1,586,470 |

The new volume-base overhead rate=Net Overhead/Total Material Cost =1,586,470/1,741,400=0.91 10. Determine the activity-based costs for grades A-D. | The new overhead rate 0.91 | | | | | | Product | Average | Total Material | Allocated | Grade Change | Slitting | Total Cost | Activity-based | | | (Grade) | Reels per Batch | Cost per Batch | Overhead | Cost | Cost | | Cost | | | | A | B | C=B*0.91 | D | E=2294*A | F=B+C+D+E | G=F/A | | | A | 50 | $ 240,000

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