Case
Teaching Notes
Supplementary Resources
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
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