'Forest Hills Case Study Essay\r'

'According to the cause materials, Forest Hill Paper Company is classified ad as a small manufacturer, and one that is â€Å"closely-held.” This could rifle one to believe that it is possibly a family-owned profession, or at least managed in truth actively by a few people. Ownership must be rattling hands on and awargon of the business from a micro and big level. Therefore, we would classify the gild as a small business and ownership is probably structured by one or a few people who ar genuinely involved. FHPC could be as yet be an S-corp, depending on that information.\r\nForest Hill ope localizes in a rattling rotary patience, with upswings every three to four years, consort to the mooring. This is due to customers buying a lot of reputation during good economic times. Customers overbuy and are left with inventories of paper, and so don’t buy for a time until former(a) economic boom occurs. Therefore, the intentness is very ofttimes affected by t he overall macro economy. The indus generate is also being affected in terms of a loss of market share, because there is a trend toward plastic and the use of to a greater extent environmentally friendly hits of recycled paperboard. One could argue that the industry and market is mature, and even declining. Another aspect to go steady about this industry is that it is one that has barriers to entry. The greet of offset a manufacturing lodge are high. It is not an industry with small capital outlay. Also, there are regulations in manufacturing which could keep competition from arising.\r\nWe read in the case that Forest Hills is a small company competing against great(p)r companies in a commodity market. Therefore, FHPC has taken the outline of differentiation. They have tried to offer a spaciotemporal amount of products and services, but are trying to carrel out from the crowd by offering particular(a) service and rapid responses to customer needfully. Unlike the big c ompanies, FHPC could develop more of a relationship with from from individually one one customer, and take more time to listen to their needs and meet customer needs more efficiently. The scheme of differentiation shows their desire to create a inlet establish, not so much focused on innovation, but on customer service. Hopefully customers go forth appreciate the service, and want to continue business with FHPC as opposed to the bigger companies.\r\nThere are more examples of complexities that find belt speak tos for FHPC. One of the complexities is that the company offers a variety of products, with some different bear on for severally product. We read that the company tries to manufacture products in an order that decreases costs, such as keeping analogous processes together. Even so, the tacks in process and equipment needed drive overhead costs up with so much variety in products and steps in the manufacturing process. each time another product is added, or even ch anged slightly, costs are incurred and will drive overhead in terms of increased material costs or manufacturing costs.\r\nIf Forest Hills is serious about conflict their customers individual needs, they also need to understand that each customer differential comes with greater overhead costs. The specifics of each customer desire causes complexity. We would also argue that another complexity of overhead costs is due to the cyclical nature of the business. There are times of large quantity of fruit, while other times performance would be down as the demand decreases. This makes it rough to predict and measure overhead costs, as the output of toil varies. The management must truly try to understand their fixed and variable costs and how to poise times of boom and retraction removely and efficiently.\r\nCapturing Manufacturing be\r\nThe current cost system of rules allocates manufacturing overhead base on the amount of raw materials con marriageed in the mathematical produc t process. It applies the aforementioned overhead at a rate of $1.05, per $1.00 of raw materials consumed. presumption the actual data collected in exhibit 2, the rate appears to adequately identify for the sum of overheads generated, as evidenced by the tabulate below:\r\nCost of a Grade careen\r\nFHPC produces 20 different grades of paperboard. Each grade is laughable and the amount varies so some batches maybe very large and some quite small. The company practices feed manufacturing so successive batches of similar grades are sort out together in order to reduce waste. The cost of a grade change includes the following: depreciation, labor, energy, other and lost chemicals. Assume 4 grade changes in ingrained from the information provided.\r\nCost to Slit a Reel of Paperboard\r\nA farm bicycle of paperboard is 12 feet long. Food processors require widths of 18 inches. This means that three slits must be do to produce 3 †18” rolls. Approximately 6 inches of w aste is produced by creating 3 †18” rolls. solo grade A and grade C are slit. A total of 85 reels are produced each reel requiring 3 slits. A total of 255 slits are made. The overhead for slitting is $195,000 for slitting. The overhead rate per slit is $764.71. assumptive 3 slits per reel the total cost for slitting a reel is $2,294.12. Summary listed below.\r\nNew Volume-based Overhead tramp\r\nIf Forest Hill removes the overheads traceable to grade changes and slitting from total overhead, the application rate needs to be adjusted. An appropriate application rate for the remaining OH can be calculated by dividing the aforementioned OH by the sum of RM costs:\r\n activeness Based Costs †Grades A-D\r\nIf an natural process based cost system were to be implemented, the parent reel costs (for the same level of exercise indicated in exhibit 1) could be estimated as follows:\r\nActivity Based Costs and Volume Cost part Change\r\nPrepare a table that illustrates the per centum change in costs between the volume-based system and the strategic activity-based system.\r\nConclusions and Recommendations\r\nWhat conclusions can you draw from your compend? As a consultant to Forest Hill, what actions would you recommend?\r\n12. The analysis above shows the concerns of management were accurate. The costs of A and C were understated because the costs related to the slitting operation were unfairly being allocated to other grades. Grades B and D do not consume any of the slitting department resources, olibanum should not be responsible for the absorption of verbalize departments’ overhead costs. In addition, the economies of scale being generated by high volume sales were being unfairly distributed to low volume grades.\r\nThis is evident in the cost of grade B, which was previously only being allocated $one hundred forty of total grade change costs (grade change as a percentage of total OH, cypher by total overhead allocated to grade B). Giv en that grade changes are only incurred if a grade is run, it makes more sense to allocate costs based on the actual flesh of a production runs, as opposed to how much material was consumed in a run, which has no bearing on the number of set-ups required.\r\n'