Mendel Paper Company
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 …show more content…
The table also shows materials for computer stock is now up to $7 and place mats materials will be up to $4 a unit. In addition, the volume of computer paper has went up 5,000 cartons from the originally figures. The newly revised table shows that by increasing the materials cost it lowered the contribution margin and the contribution margin per unit that it would take the company longer to breakeven. Although these changes are instantly seen by the increase in profits, the superintendent is not concern about higher sales but lowering the cost.
3. Original estimates fixed cost =538000
Breakeven point units 1013000/275000=4
Breakeven point dollars 1013000/2480000=.41
Margin of safety 2480000-1013000=1467000, 1467000/2480000*100=59.15%
The table shows how many units the company will have to produce in order to break even. The company is already producing 275000 units. The breakeven for units states that the company is over producing by 140500 units. Marlene Herbert express that he knows the company is operating over the normal capacity and will sooner need more equipment and more plant capacity. Although the company is producing more products, the company is also seeing an extra $1,167,805 in total sales. The margin of safety explains that sales can drop 59% before the company actual start seeing a decline in profits.
4. Revised estimates fixed cost =496000
Breakeven point units