Forest Hill Paper

1. According to information in the case, The Forest Hill Paper Company is considered to be small and closely-held. This indicates that the company is possibly family owned and that the management team could include descendants of the original founder. The company is much smaller in size than most of it’s competitors in relation to size.

2. The Forest Hill Paper Company produces large quantities of paperboard called parent rolls. Converters use FHPC’s products to produce consumer-packaging materials such as those used in microwavable meals. Paperboard producers operate in a cyclical economic environment with upswings every three to four years. Customers often double or triple orders during these surges which ultimately leaves them with excess material when the demand slows. The industry is very capital intensive.

3. FHPC’s main strategy was based upon good customer service including rapid responses to customer’s needs; this provided a niche for the company that bigger producers could not fit. The management team at FHPC has long believed in offering a full line of products and services in order to better compete with larger firms in the industry. FHPC produces 20 different grades of paperboard at their plant.

4. Some customers require specific dimensions for the parent rolls and so FHPC uses a rewinder slitter to cut the rolls into smaller sizes. For allocation purposes, FHPC has historically combined labor and machines costs of the rewinder slitter with those of the paper machine. Since the slitter does not further process some of the rolls, they are unintentionally included in the shared cost of slitting. Some grades were subsidizing others with respect to costs.

FHPC has traditionally accounted for overhead as a function of material costs related to the volume of production. However, some overhead costs were found to occur without respect to volume. This occurred when grade changes were made between products producing scrap material.