Forest_Hill_Paper_Co_Answers - Answers Question1. Forest...

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FOREST  HILL  PAPER  COMPANY  CASE Answers Question 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.” closely_held_corporation A noun 1
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1 closely held corporation stock is publicly traded but most is held by a few shareholders who have no plans to sell Source : http://www.wordreference.com/definition/closely_held_corporat ion Question 2 . What is the nature of the industry in which  Forest Hill competes? “The industry is capital intensive; therefore, fixed production costs are high. Unfortunately, the industry also is cyclical. Forest Hill competes in a commodity market. As a small company, they do not have the ability to set prices for standard products.” 2
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Question 3 . Identify and discuss the strategy used by  Forest Hill to compete in a commodity market. “Management offers a full product line together with special services (such as slitting) in an attempt to carve out a niche. In addition, the company seeks to offer rapid responses to unique customer needs.” 3
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Question 4 . What are some examples of complexity  that drive overhead costs for Forest Hill? “Because Forest Hill produces multiple grades, it must change the process between runs of products having different characteristics. Thus, one could argue that the decision to offer a full product line [i.e. different grades of paper] creates complexity. One complexity cost of a full product line is the cost of grade changes. In addition, slitting services increase the complexity of the FHPC operation. For example, if the company made one grade of paper as a commodity and did 4
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not offer slitting services, many of its operating costs would cease.” Question 5 . How does the current system capture manufacturing costs and assign them to products?  (Prove the overhead rate is 105% of material cost.) “Material costs are directly assigned to each product grade. Overhead is applied as a function of material costs. (Interestingly, labor costs are insignificant in the capitalintensive process. Most paper companies simply allocate labor as a part of 5
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overhead. Forest Hill uses this approach.) Total material costs are calculated as follows:” Exhibit A Material _______________Reels                     
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