Forest Hills Case Study Essay

According to the case materials, woodland Hill Paper association is classified as a small manufacturer, and sensation that is closely-held. This could lead one to believe that it is possibly a family-owned backing, or at least managed real actively by a few people. Ownership essential be very hands on and aw ar of the business from a small and macro level. Therefore, we would classify the company as a small business and ownership is probably structured by one or a few people who ar very involved. FHPC could be even be an S-corp, depending on further information.Forest Hill ope counts in a very cyclical indus picture, with upswings every three to four years, according to the case. This is due to customers acquire a lot of paper during good economic generation. Customers overbuy and are left wing with inventories of paper, and therefore dont buy for a while until other(a) economic pick up occurs. Therefore, the industry is very more than affected by the overall macro ec onomy. The industry is also being affected in terms of a loss of market share, because there is a trim down toward plastic and the use of much environmentally friendly degrees of recycled paperboard. One could manage that the industry and market is mature, and even declining. A nonher aspect to consider more or less this industry is that it is one that has barriers to entry. The comprises of starting a manufacturing company are high. It is not an industry with small capital outlay. Also, there are regulations in manufacturing which could keep competition from arising.We read in the case that Forest Hills is a small company competing against big companies in a commodity market. Therefore, FHPC has taken the strategy of assortediation. They have tried to offer a comprehensive tot up of products and services, but are trying to stand out from the crowd by offering exceptional service and rapid responses to customer essentials. Unlike the bigger companies, FHPC could develop more of a relationship with individuallycustomer, and take more time to listen to their needs and meet customer needs more efficiently. The strategy of differentiation shows their desire to create a niche based, not so much focused on innovation, but on customer service. Hopefully customers will appreciate the service, and want to continue business with FHPC as opposed to the bigger companies.There are many examples of complexities that mother strike approach for FHPC. One of the complexities is that the company offers a variety of products, with some different surgical operationing for each product. We read that the company tries to manufacture products in an put that decreases costs, such as keeping exchangeable processes together. Even so, the changes in process and equipment needed drive smash-up costs up with so much variety in products and steps in the manufacturing process. Each time other product is added, or even changed slightly, costs are incurred and will drive knock in terms of increased material costs or manufacturing costs.If Forest Hills is serious about meeting their customers individual needs, they also need to understand that each customer differential comes with greater belt costs. The specifics of each customer desire causes complexity. We would also argue that another complexity of command processing strike time costs is due to the cyclical nature of the business. There are times of spectacular quantity of output, while other times exertion would be down as the demand decreases. This makes it difficult to predict and measure overhead costs, as the output of production varies. The management must truly try to understand their fixed and variable costs and how to balance times of boom and retraction appropriately and efficiently.Capturing Manufacturing besThe current cost outline apportions manufacturing overhead based on the amount of raw materials consumed in the production process. It applies the aforementioned(prenomin al) overhead at a rate of $1.05, per $1.00 of raw materials consumed. Given the unfeigned data gathered in exhibit 2, the rate appears to adequately name for the sum of overheads generated, as evidenced by the control panel belowCost of a Grade ChangeFHPC produces 20 different tells of paperboard. Each human body is unique and the amount varies so some batches maybe very large and some quite small. The company practices lean manufacturing so successive batches of similar grades are grouped together in order to reduce waste. The cost of a grade change includes the following depreciation, labor, energy, other and lost chemicals. strickle 4 grade changes in tote up from the information provided.Cost to kale a Reel of PaperboardA parent roll of paperboard is 12 feet long. Food processors require widths of 18 inches. This means that three slits must be made to produce 3 18 rolls. Approximately 6 inches of waste is produced by creating 3 18 rolls. Only grade A and grade C are sl it. A essence of 85 reels are producedeach 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. Assuming 3 slits per reel the total cost for slitting a reel is $2,294.12. Summary listed below.New Volume-based Overhead identifyIf 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 bay window be calculated by dividing the aforementioned OH by the sum of RM costsActivity Based cost Grades A-DIf an drill based cost system were to be implemented, the parent reel costs (for the same level of activity indicated in exhibit 1) could be estimated as followsActivity Based Costs and Volume Cost Percent ChangePrepare a table that illustrates the percentage change in costs between the volume-based system and the strategic activity-based system.Conclusions and Reco mmendationsWhat conclusions can you draw from your analysis? As a consultant to Forest Hill, what actions would you recommend?12. 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 segment resources, thus should not be responsible for the absorption of said departments overhead costs. In addition, the economies of scale being generated by high volume gross revenue were being unfairly distributed to low volume grades.This is evident in thecost of grade B, which was previously only being allocated $140 of total grade change costs (grade change as a percentage of total OH, multiplied by total overhead allocated to grade B). Given that grade changes are only incurred if a grade is run, it makes more sense to allocate costs based on the actual number of a production runs, as opposed to h ow much material was consumed in a run, which has no bearing on the number of set-ups required.