Mendel Paper Company
Intro
In the case of Mendel Paper Company which produces four basic paper products lines at one of its plants: computer paper, napkins, place mats, and poster board. Although the plant superintendent, Marlene Herbert is pleases with increased sales he is also concerned about the costs. The superintendent is concerned with the high fixed cost of production, the increases in fixed overhead and even variable overhead. He feels that the production of place mat should be discontinued. His reason for the discontinuation is that the special printing is driving up the variable overhead to the point where the company may not find it profitable to continue with the line. After reviewing the future predictions of the
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If Marlene Herbert were to discontinue place mats, he would miss $270,000 that will go toward Mendel paper company fixed cost. The company currently has a plant overhead that is estimated at $420,000 for the quarter. In addition to the fixed plant overhead, the plant incurs fixed selling and administrative expenses per quarter of $118,000. This draws the company to a total fixed cost of $538,000. If Marlene Herbert were to discontinue the second highest contributor to the fixed cost, he would need to increase the volume of computer paper and lower material cost to help pull the contribution margin of the lowest product up to help support the lost of a whole product line.
Question 2
2. Revised Computer paper Napkins Place mats Poster board Total
Volume 35000 120000 45000 80000
Selling price 14 7 12 8.5
Material Cost $7.00 4.5 $4.00 2.5
Units per hour 6 10 5 4
Variable overhead 9 6 12 8
Variable overhead per unit 1.5 .6 2.4 2 Total sales 490000 840000 540000 680000 2550000
Material cost 245000 540000 180000 200000
Variable overhead 52500 72000 108000 160000 Contribution margin 192500 228000 252000 320000 992500
CM per unit 5.50 1.90 5.60 4.00 In this table, it reflects the changes in fixed plant overhead from $420,000 to $378,000. The company still has the fixed selling and administrative expense per quarter of $118,000. The new company fixed overhead is now at $496,000 from the past $538,000 ($42,000) change from past to
Performance appraisal is an important issue in human resource management and has a significant effect in the performance of an organisation. It is the system of evaluating the performance of employees regarding the accomplishment of their responsibilities and determining their potential to grow and develop. Bias in the evaluation process can affect the accuracy and appropriateness of the performance appraisal. Bias is a serious issue because it affects the ability to make appropriate decisions about the promotion of employees. A performance appraisal system that works to the disadvantage of members of a group can also pose legal issues.
The company is weakened mainly by its lack of technological advancement in every area of production. For example, if the company chose to modify their equipment to produce their “Atherley” model as well, it would be able to lower production costs of this model, in turn increasing the profits of this model further. In addition, the Atherley Furniture Company greatest threat is the decreased market for their “Parkdale” model. The “Parkdale” model has the most time consuming and costly production. With lack of a market for this model, the company stands to continue to lose profits. In conclusion, if the company wishes to continue to operate their chair division profitably as well as efficiently, the above issues need to be addressed and corrected.
Peak Garage Doors Inc. is a privately owned firm and has had 2003 sales of $9.2 million and net profits before taxes of 460,000. Given is a 2003 income statement (pg.411) which states that cost of goods sold was $6.9 million. With the sales and cost of goods sold numbers we can figure out that the contribution margin for Peak’s garage doors is $0.25 for every dollar sold. The company has 2 distribution centers and employs 8 sales representatives for independent dealers and 2 sales reps for the exclusive dealers, each rep with a salary of $80,000. Below is the summary of employee composition.
Choice made from year 7 to year 8 is a weakness. Sales Commissions, Distribution network support and transportation out showing the same trend: increase from year 6 to 7 at 33% (negative) and then a decrease of 15% from year 7 to 8(positive). To summarize on total selling expense, the amount increased by 33% from $299220 to $397960 and then dropped to $338748 at the most recent year, totaling 14.9%. Cost of being in business can be high; we can see that by having a high cost in the three above measurements company was profitable from year 6 to year 7. But it seems like the company realized that keeping expenses under control is strength and reduced it from year 7 to year 8.
The variable cost of the place mats is the concern of Marlene Herbert. As you can tell by looking at the contribution margins the place mats are adding to the profits of the company. Stopping the production of the place mats would not be a good idea because it would take away from the company profits. Due to the selling price being higher than the variable cost Ms. Herbert should not be concerned with it. As Wouters (1993) put it management must use accounting data when making decisions, which will help in determining if Mendel Paper Company should continue producing place mats or not. Uncontrollable cost should be one of the things looked at before making this decision as well. It is said by Sarkar et al (2013) that when the variable cost is less than the selling price the decisions should be to continue the
The company wants to sell the tables at $2,000 each with the operating income being 10% of revenue. With the current table design as is, it will cost the company $392,500 to produce 200 tables. To calculate the cost per unit one would take the total cost $392,500 and divide it by the 200 tables, which equals $1,962.50 per table. However, the target cost per unit
Assume you have been hired as a managing consultant be a company to offer some advice that will help it make a decision as to whether it should shut down completely or continue its operations. It currently uses 100 workers to produce 6,000 units of output per month (working 20 days/month). The daily wage (per worker) is $70, and the price of the firm’s output is $32. The cost of other variable inputs is $2,000 per day. You are told that the firm’s fixed cost is “high enough” so that the firm’s total costs exceed its total revenue. The marginal cost of the last unit is $30.
Synopsis and Objectives The owner of a midsize folding carton printer is considering the replacement of an old machine for cutting sheets of paper from rolls (a sheeter) with a new one. This standard capital budgeting analysis, which requires identification of both the relevant cash flows and the relevant discount rate, is enhanced by an alternative that is not explicitly stated but can be readily identified and analyzed—to outsource all sheeting and close down the sheeting operation. This alternative, which turns out to be financially optimal based on quantifiable case facts, forces students to consider strategic and other nonquantifiable
Fixed Overhead expenditure variance for the year is 1000 Adverse. Therefore next year organization can use efficient fixed overhead management or reduce planning errors. This will help the organization to improve their fixed overhead expenditure variance.
Firstly, it is strategically beneficial for the company to continue to produce products A, C, and D. However, you should discontinue production of product B, as it is unprofitable and is losing the company money. Product B has been losing the company $2,307 per reel. If the company deems it is essential to keep producing product B in order to retain their customer base, we recommend changing the production schedule. For example, during times of lower demand, you can produce products such as B that do not make as much money, but you will still retain your customers’ business and satisfy their needs. During times of higher demand, by discontinuing the production of product B, the company will be able to produce the more profitable products such as A, C, and D.
7.Anticipate business problems that may result from allocating manufacturing overhead based on the cost of the prints.
Simple Simon’s current financial situation is tenuous. The company is producing 6,000 units per month, but after all variable and fixed costs, they are losing $40/month. The company’s labor costs are extraordinarily high. The current labor cost is $23.33/unit, which is 72.9% of the $32 sales price (See attached Table 1).
We want to know the amount aluminum cans account for in the cost of sales. According to the provided information cans account for 60% of net revenues. Net revenue in 1994 will be $231,207 * 1.04 = $240,455. The cans contribute 0,60 * $240,455 = $144,273. With a gross margin on cans of 27% the cost of sales of aluminum cans for 1994 is
Furniture, Inc., sells lamps for $30. The unit variable cost per lamp is $22. Fixed costs total $9,600. Required: a. What is the contribution margin per lamp? b. What is the breakeven point in lamps? c. How many lamps must be sold to earn a pretax income of $8,000? d. What is the margin of safety, assuming 1,500 lamps are sold? Answer: a. Contribution margin per lamp = $30 – $22 = $8 b. N = Breakeven point in lamps $30N – $22N - $9,600 = 0 $8N – $9,600 = 0 N = $9,600/$8 = 1,200 lamps c. N = Target sales in lamps $30N – $22N – $9,600 – $8,000 = 0 $8N – $17,600 = 0 N = $17,600/$8 = 2,200 lamps d. Margin of safety = Sales – Breakeven sales = ($30.00 x 1,500) – $36,000 = $9,000