Tiger Paper Ltd Academic Essay

Tiger Paper Ltd is a multinational Chinese paper company, which has adivision in Australia. In Australia, Tiger paper has two paper mills, oneof which is located in Dallas, Victoria. The Dallas mill produces 30different types of coated and uncoatedspecialty printing papers. Management was convinced that the value ofthe large variety of products more than offset the extra costs of theincreased complexity. During 2016, the Dallas mill produced 120 000tonnes of coated paper and 80 000 tonnes of uncoated paper. Of the 200000 tonnes produced, 180 000 were sold. Four products account for 80%of the tonnage sold. Thus, 26 products are classified as low- volumeproducts.Foam Kraft 85gsm (FK) is one of the low-volume products. FK isproduced in rolls, converted into sheets of paper and then sold incartons. In 2016 the cost to produce and sell one tonne of FK was asfollows. Overhead is applied by using a two-stage process. First, overhead isallocated to the paper and finishing machines by using the direct methodof allocation with carefully selected cost drivers. Second, the overheadassigned to each machine is divided by the budgeted tonnes of output.These rates are then multiplied by the number of kilograms required toproduce one good tonne.In 2016, FK sold for $2200 per tonne, making it one of the mostprofitable products. A similar examination of some of the other lowvolumeproducts revealed that they also had very respectable profitmargins. Unfortunately, the performance of the high- volume productswas less impressive, with many showing losses or very low profitmargins. This situation led Grace Wang, the Manager for the Australiandivision to call a meeting with her marketing director, Sadia Khan, andher Chief Financial Officer (CFO), Debbie Benson.GRACE: The above-average profitability of our low-volume specialtyproducts and the poor profit performance of our high-volume productsmake me believe that we should switch our marketing emphasis to thelow-volume line. Perhaps we should drop some of our high-volumeproducts, particularly those showing a loss.SADIA: Im not convinced that solution is the right one. I know ourhigh-volume products are of high quality, and Im convinced that we areas efficient in our production as other firms. I think that somehow ourcosts are not being assigned correctly. For example, the shipping andwarehousing costs are assigned by dividing these costs by the totaltonnes of paper sold. Yet ?DEBBIE: Sadia, I hate to disagree, but the $30-per-tonne charge forshipping and warehousing seems reasonable. I know that our method toassign these costs is identical to a number of other papercompanies. SADIA: Well, that may be true, but do these othercompanies have the variety of products that we have? Our low-volumeproducts require special handling and processing, but when we assignshipping and warehousing costs, we average these special costs acrossour entire product line. My records indicate quite clearly that virtuallyall of the high-volume products are sent directly to customers, whereasmost of the low-volume products are sent to the distribution centre. Imnot convinced that all products should receive a share of the receivingand shipping costs of the distribution centre as currently practised.GRACE: Debbie, is this true? Does our system allocate our shipping andwarehousing costs in this way? DEBBIE: Yes, Im afraid it does. Sadiamay have a point. Perhaps we need to reevaluate our method to assignthese costs to the product lines.GRACE: Sadia, do you have any suggestions concerning how theshipping and warehousing costs should be assigned? SADIA: It seemsreasonable to make a distinction between products that spend time in thedistribution centre and those that do not. We should also distinguishbetween the receiving and shipping activities at the distribution centre.All incoming shipments are packed on pallets and weigh one tonne each PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT

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