Midwest Office Products Case

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Midwest Office Products
1. Calculate the following
a. The cost of processing cartons through the facility i. Warehouse Expense ($2,000,000) + [Personnel Expense – Delivery Driver Expense] ($2,320,000) = $4,320,000 1. $4,320,000 / 80,0000 = $54/carton

Cost of entering customer orders| |
Order entry expenses| | $840,000 | |
hours worked per employee (16)| 1,500 | | |
Total hours worked| 24,000 | | |
Cost per hour worked| | $35 | |
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time to enter information (hours)| 0.15 | $5.25 | /hour| time per line item (hours)| 0.075 | $2.63 | /hour|
time to verify electronic info (hours)| 0.10 | $3.50 | /hour| 1500 is used because you are trying to determine the cost incurred by actually performing the job activity. 1500 hours is the estimated amount of time each employee needs to perform their job function and for 16 employees the total working hours required per year to input/verify order information is 24000.| |

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b. The cost of entering electronic and manual customer orders

c. The cost of shipping cartons on commercial carriers ii. Freight - $450,000
2. $450,000 / 75,000 = $6/carton
d. The cost per hour for desktop deliveries
iii. Delivery Truck Expense ($200,000) + Delivery Drivers Compensation ($250,000) = $450,000 iv. Hours each delivery driver worked (1,500) x Number of delivery drivers (4) = 6,000 v. $450,000 / 6,000 = $75/hour

2. Using this cost driver information, calculate the cost and profitability of the five orders in Exhibit 2. Compare these costs and profitability to those calculated by Midwest’s existing costing system? Order| 1| 2| 3| 4| 5|

Price| $610| $634| $6,100| $6,340| $6,100|
Acquisition Cost| 500| 500| 5,000| 5,000| 5,000|
# of cartons in order| 1| 1| 10| 10| 10|
# of cartons shipped commercially| 1| 0| 10| 0| 10|
Desktop delivery...
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