19 May QuestionCase: Mendel Paper Company
Question
Case: 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 follo
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