Essay on Maple Hill Dairy Farm

754 Words Nov 28th, 2010 4 Pages
MAPLE HILL DAIRY FARM
ABC COST UNIT ANALYSIS

October 5, 2010

The demand for organic items in the US has been growing exponentially in the past decade. Numerous warnings about what we consume are very common; the chemicals, preservatives and other additives are creating health problems worldwide. Thus, a growing niche for all-natural processing is booming.

Maple Hill Dairy Farm is a small family-owned business. They take pride in their high quality dairy products they produce. They sell their dairy products in a small store adjacent to the farming operation as well as in several area markets. Part of their charm is due to the fact that their products are still bottled in glass bottles. However, this is also part of their
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The volume of those items sold is the reason that Maple Hill has been able to post a positive net income.

Maple Hill Dairy Farm
ABC cost unit analysis
Page 2

Based on the information of this analysis, my recommendations are as follows:

1. Change from the glass to the plastic/paper containers. The savings from this change, all else status quo, would bring their margin closer in line to where the losses on the chocolate milk and eggnog would be within 15%. From that single change, the net income alone could increase to $985,790.

2. By switching to plastic/paper containers, the manufacturing process would also change. Thus the overhead allocations for the “bottling” task would be reduced to half their costs as of this analysis. It is assumed that the change would take 6 months to complete, and it is assumed that they dairy will be able to keep up with production for that transition. Again, a reduction of half of these costs, for half of a year, would again reduce the overhead by 20.5%. This will also increase warehouse capacity, as there is no more storage for returned glass containers.

This may, however, create an increase of warehousing costs and additional labor as paper and plastic containers will not have the support and the ability to be stacked as glass containers do.

3. A proposed

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