In this case, you are provided information regarding selling prices and costs of several products offered by . In addition, management has concerns about sales mix and rising costs. Address the questions (1-5) at the end of the case. Based on the case questions, you are required to provide a three to five (excluding the title and reference pages), addressing managements concerns. The written report should be properly formatted according to APA guidelines and demonstrate research and critical thinking skills. Conclusions and recommendations should be supported by at least two scholarly sources from the Ashford Library or other external sources, excluding the textbook.
For Questions 1 through 4, you will need to complete several calculations be sure to label and clearly identify your work to demonstrate your understanding of the concept even if you are not sure if you have arrived at the correct answer. The calculations should be included as part of your analysis and written report required for submission.
For Question 5, fully address managements concerns as part of your written analysis using the original or revised estimates to support your recommendation/explanation. As part of your written analysis, include how management might use these calculations to make decisions.
Week 1 Written Assignment should:
Case:Mendel Paper Company
Mendel Paper Company produces four basic paper product lines at one of its plants: computer paper, napkins, place mats, andposter board. Materials and operations vary according to the line of product. The market has been relatively good. The demandfor napkins and place mats has increased with more people eating out, and the demand for the other lines has been growingsteadily.
The plant superintendent, Marlene Herbert, while pleased with the prospects for increased sales, is concerned about costs:
“We hear talk about a paperless office, but I haven’t seen it yet. The computers, if anything, have increased themarket for paper. Our big problem now is the high fixed cost of production. As we have automated our operation,we have experienced increases in fixed overhead and even variable overhead. And, we will have to add moreequipment since it appears that we need even more plant capacity. We are operating over our normal capacity asit is.
The place mat market concerns me. We may have to discontinue printing the mats. Our specialty printing is drivingup the variable overhead to the point where we may not find it profitable to continue with that line at all.”
Cost and price data for the next fiscal quarter are as follows:
|Computer paper||Napkins||Place mats||Poster board|
|Estimated sales volume in units||30,000||120,000||45,000||80,000|
Variable overhead includes the cost of hourly labor and the variable cost of equipment operation. The fixed plant overhead isestimated at $420,000 for the quarter. Direct labor, to a large extent, is salaried; the cost is included as a part of fixed plantoverhead. The superintendent’s concern about the eventual need for more capacity is based on increases in production that mayreach and exceed the practical capacity of 60,000 machine hours.
In addition to the fixed plant overhead, the plant incurs fixed selling and administrative expenses per quarter of $118,000.
“I share your concern about increasing fixed costs,” the supervisor of plant operations replies. “We are still operating with aboutthe same number of people we had when we didn’t have this sophisticated equipment. In reviewing our needs and costs, itappears to me that we could cut fixed plant overhead to $378,000 a quarter without doing any violence to our operation. Thiswould be a big help.”
“You may be right,” Herbert responds. “We forget that we have more productive power than we once had, and we may as welltake advantage of it. Suppose we get some hard figures that show where the cost reductions will be made.”
Data with respect to production per machine hour and the variable cost per hour of producing each of the products are given asfollows:
|Computer paper||Napkins||Place mats||Poster board|
|Units per hour||6||10||5||4|
|Variable overhead perhour||$9.00||$6.00||$12.00||$8.00|
“I hate to spoil things,” the vice-president of purchasing announces. “But the cost of our materials for computer stock is now upto $7. Just got a call about that this morning. Also, place mat materials will be up to $4 a unit.”
“On the bright side,” the vice-president of sales reports, “we have firm orders for 35,000 cartons of computer paper, not 30,000as we originally figured.”
1. From all original estimates given, prepare estimated contribution margins by product line for the next fiscal quarter. Also, per unit.
2. Prepare contribution margins as in part (1) with all revisions included.
3. For the original estimates, compute each of the following:
(a) Break-even point for the given sales mix.
(b) Margin of safety for the .
4. For the revised estimates, compute each of the following:
(a) Break-even point for the given sales mix.
(b) Margin of safety for the estimated sales volume.
5. Comment on Herbert’s concern about the variable cost of the place mats.
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