Forest Hill Paper Company

Abstract

The Forest Hill Paper Company case is based on the author’s experience with cost system design at various paper manufacturing plants. The case provides a background discussion of the industry, competitive environment, and manufacturing process. Thus, students have a realistic context in which to study the principles of activity-based costing. The case requires students to develop product cost calculations using the company’s traditional system. Next, students design a simple two-stage allocation system having three cost pools. The case asks students to compare the activity-based cost calculations with the cost calculations from the traditional system. Finally, students make recommendations to management based on their knowledge obtained from the improved cost system.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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Resources

Exhibit 1: Selected product grades with production and financial data

Product (Grade)

Caliper

Coated/Uncoated

Slit

Average Reels per Batch

Material Cost per Reel

Selling Price per Reel

A

.013

Coated

yes

50

$4,800

$12,600

B

.014

Uncoated

no

2

$5,200

$13,500

C

.015

Coated

yes

35

$5,600

$14,200

D

.020

Coated

no

175

$7,400

$19,500

Exhibit 2: Overhead Structure

Total

Grade cCange

Slitting

Net

Depreciation

$800,000

$8,000

$70,000

$722,000

Labor

300,000

3,000

25,000

272,000

Energy

500,000

5,000

80,000

415,000

Other

198,470

1,000

20,000

177,470

Unrecoverable Clay and Chemicals from Grade Changeovers

30,000

30,000

-0-

-0-

Total

$1,828,470

$47,000

$195,000

$1,586,470

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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