Complete:Case 2B (Mendel Paper
Company).
In this case, you are provided information regarding selling prices
and costs of several products offered by Mendel Paper Company. 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 double-spaced written report (excluding the title and
reference pages), addressing management’s 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 management’s 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:
- Demonstrate
graduate level work including appropriate research and critical thinking
skills. - Prepare a
written analysis (not a question/answer format) - Label case
questions as paragraph headings. - Prepare
title page, reference page and in-text citations following APA
guidelines.(Compose response in a three- to- five double-spaced pages of
content, excluding the title and reference pages)
CASE 2B – MENDEL PAPER COMPANY Mendel Paper
Company produces four basic paper product lines at one of its plants: computer
paper, napkins, place mats, and poster board. Materials and operations vary
according to the line of product. The market has been relatively good. The
demand for napkins and place mats has increased with more people eating out,
and the demand for the other lines has been growing steadily. 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 the
market 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 more equipment
since it appears that we need even more plant capacity. We are operating over
our normal capacity as it is. The place mat market concerns me. We may have to
discontinue printing the mats. Our specialty printing is driving up 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 Selling prices……………………. $14.00 $7.00
$12.00 $8.50 Material costs…………………. 6.00 4.50 3.60 2.50 Variable overhead
includes the cost of hourly labor and the variable cost of equipment operation.
The fixed plant overhead is estimated at $420,000 for the quarter. Direct
labor, to a large extent, is salaried; the cost is included as a part of fixed
plant overhead. The superintendent’s concern about the eventual need for more
capacity is based on increases in production that may reach 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 about the same number of people we had when we didn’t have this
sophisticated equipment. In reviewing our needs and costs, it appears to me
that we could cut fixed plant overhead to $378,000 a quarter without doing any
violence to our operation. This would 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 well take 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 as follows: Computer Paper Napkins
Place mats Poster board Units per hour 6 10 5 4 Variable overhead per hour
$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 up to $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 30,000 as we originally figured.” Questions: 1.
From all original estimates given, prepare estimated contribution margins by product
line for the next fiscal quarter. Also, show the contribution margins 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 estimated sales volume. 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.
