Analysis of Rising Production Costs in Paper Towel Industry

Analysis of Rising Costs Rasmussen University B288/GEB2888 Introduction to Business Analysis and Intelligence Stephanie Antuna November 28, 2023

From: Stephanie Antuna Date: November 28, 2023 Subject: Analysis of Rising Costs Good afternoon, I am writing this email to review data findings that show the cost of production for paper towels has risen by 20% in the last six months. The prices include materials, labor, equipment, building, and administration. The workers' labor contracts have also been renewed, pressing machines upgrades, and raw materials costs are fluctuating. 1. What is the profit margin per paper towel roll? Each roll of paper towels takes approximately sixty-two cents to produce. However, they are sold for one dollar per roll. Therefore, the profit margin is thirty-eight cents per roll. Profit margin = (net income / net sales) x 100 The net sales from 1 paper towel are $1. The net income revenue-expenses expenses are 62 cents Net income=100 cents-62 cents=38 cents Profit margin=38/100=0.38*100= 38 cents

2. What are the production costs per paper towel produced? Today's Total Production Cost is as follows. As I previously stated above, the production cost per roll is sixty-two cents. Softwood Chemical Glue Equipment Labor Cost. Building & Total Cost Resin Costs Cost. Administration cost 10 cents 2 cents. 5 cents, 20 cents, 25 cents, 62 cents 3. What is the significance of the cost increases over the past six months? We have seen an increase of twelve cents per roll over the past six months. Previously, the production costs per roll were fifty cents; now, they are sixty-two cents per roll. The company’s concern with the rising production cost is that the business aims to make financial profits. Since the company has maintained the prices of paper towels at $1 despite a 12 12-cent increase in the cost of production, it must find a way to decrease production costs. The growth of the production costs expenses is an opportunity to raise the prices to increase revenue, sell more paper towels, address the rising production costs, or combine all three approaches. 4. Why is it necessary to do a trend analysis for this situation? In the article How Trend Analysis Can Help Your Business Better Analyze the Changing Market Trends (2019), a trend analysis projects the present and future fluctuations of events using time series data. A trend analysis would compare the data on production costs over the past six

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months to identify a pattern. With the rise in total production costs for the business, a trend analysis would show pattern designs and allow it to predict future values. i. First, a trend analysis would chart comparisons between data over the six months. The data could show the company's strengths and weaknesses compared to competitors. Any cost gaps can be identified, and any necessary changes adopted accordingly. ii. The company's financial performance can be charted over the last six months, allowing management to make decisions for the future. iii. The company's short-term liquidity can be assessed since production costs have risen without corresponding price increases. 5. What are some recommendations to counteract the new setup costs? i. Labor costs increased from 10 cents to 20 cents over the six months, making it the highest price. Automation is one way to address the cost of labor. All activities that can be automated in the production process should be changed to cost-effective approaches. ii. Softwood costs have risen by 2 cents over the period. There are non-wood alternatives that the company can explore to replace wood, including hemp, bamboo, and wood composites. For instance, bamboo has become a common alternative and a green option to softwood.

One recommendation would be to conduct an analysis and review of the trends. Therefore, once concluded, we can identify where the increases happen and why and search for other vendors that will provide the same product at less cost. Additionally, I attached a copy of the Excel spreadsheet to this email for everyone to view. If anyone has a question, don't hesitate to contact me directly; I will happily address it. Thank you all for taking the time to read this email. Have a great day! Sincerely, Stephanie Antuna Operating manager

References  Srikanth, N (2020 October, 4.). How Big data Analytics helps to discover market trends and customer preferences Retrieved from: https://www.techiexpert.com/how-big- data-analytics- helps-to-discover-market- trends-and- customer-preferences/

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