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Introduction
Competitive Environment
Paper and paperboard producers operate in a cyclical
economic environment, with upswings every three to four
years. In response to limited supply during an economic
boom, customers often double or triple the quantities
ordered. Then, they begin receiving their large orders as
the economy, once again, begins to slow. As a result, many
customers find their paper inventories exceed current needs
and temporarily stop placing orders. To further confound the
paperboard producers headaches, market share for domestic
paperboard has been declining. The most significant
contributors to the loss of market share are the trend toward
plastic and to more environmentally friendly grades of
recycled paperboard.
Throughout the industry, companies have made very
limited investments to expand capacity. When a surge in
demand for paper products occurs, demand will exceed
capacity. In boom times the industry experiences steep price
hikes resulting in record selling prices for most grades.
Exhibit 1
Selected product grades with production and financial data
Product
Average Material Cost
(Grade) Caliper Coated/Uncoated
Slit Reels per Batch
per Reel
.013
Coated
yes
.014
Uncoated
.015
Coated
.020
Coated
no
Selling Price
per Reel
50
$4,800
$12,600
no
$5,200
$13,500
yes
35
$5,600
$14,200
175
$7,400
$19,500
Exhibit 2
Overhead Structure
Total Grade Change
Depreciation
Slitting Net
$800,000
$8,000
$70,000
$722,000
Labor
300,000
3,000
25,000
272,000
Energy
500,000
5,000
80,000
415,000
Other
198,470
1,000
20,000
177,470
30,000
30,000
-0-
-0-
$1,828,470
$47,000
$195,000
$1,586,470
requirements
1. How would you classify Forest Hill Paper Company in
competes?
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