EcoBags, Inc.: Production Planning in a Standard Cost Environment

Abstract

The case is a simplified version of a real manufacturing planning and costing situation. EcoBags, Inc. is a privately owned manufacturer of flexible intermediate bulk containers (FIBCs) that has successfully created a market niche by developing products made from recycled materials. The founder and majority owner must consider the impacts that planned production levels will have on forecasted income and working capital spending. This production-level decision is complicated by the firm’s expected need to stay within a defined debt-to-equity ratio limit required by their lender. While published cases and classroom exercises have shown the impacts associated with overproduction, many frame the issue in terms of a manager seeking to raise reported absorption income to garner a better income-based bonus. This case represents a different dilemma in which the owner and founder must consider both income and cash flow impacts based on varying manufacturing planning schedules.