Costs and Hill Paper Company
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 producing a full range of products. As a small company competing against large companies in a commodity market, management believes FHPC must offer a full range of both products and services. Thus, Forest Hill’s strategy is to create a niche based on service and rapid response to customer needs.
QUESTIONS AND ANALYSIS 4. What are some examples of complexity that drive overhead costs for Forest Hill?
FHPC produces 20 different grades of paperboard requiring several changes in quantities and production run. Grade changes induce instabilities into the manufacturing process that result in scrap until the process resumes stability. On average, production engineers estimate that approximately one-half reel is lost to scrap each time a grade change is made. Between production runs of two different products machine setup costs are incurred. How to accurately share overhead costs between different grades of paperboard is difficult.
Sometimes customers require additional processing on parent rolls. In this case, other than the costs of specialized equipment and extra labour, damage in the slitting process is often occurred. Thus more quality inspection and testing are required when producing slit reels. How to share in the costs of
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 producing a full range of products. As a small company competing against large companies in a commodity market, management believes FHPC must offer a full range of both products and services. Thus, Forest Hill’s strategy is to create a niche based on service and rapid response to customer needs.
QUESTIONS AND ANALYSIS 4. What are some examples of complexity that drive overhead costs for Forest Hill?
FHPC produces 20 different grades of paperboard requiring several changes in quantities and production run. Grade changes induce instabilities into the manufacturing process that result in scrap until the process resumes stability. On average, production engineers estimate that approximately one-half reel is lost to scrap each time a grade change is made. Between production runs of two different products machine setup costs are incurred. How to accurately share overhead costs between different grades of paperboard is difficult.
Sometimes customers require additional processing on parent rolls. In this case, other than the costs of specialized equipment and extra labour, damage in the slitting process is often occurred. Thus more quality inspection and testing are required when producing slit reels. How to share in the costs of