Midwest Office Products

Topics: Costs, Truck, Variable cost Pages: 5 (1136 words) Published: September 1, 2013
Midwest Office Products
Aaron Wilson, Brittni Henson, Dennie Smyth & Joshua Boatright Midwest Office Products Case
ACCT. 6233
October 15, 2012
1. Based on the interviews and data in the case, estimate:
a. The cost of processing cartons through the facility
The two costs of processing cartons through the facility are warehouse costs and warehouse personnel costs. The total processing costs are $54/carton. Cartons/yr | 80000 |
Commercial Freight | 75000 |
Desktop Delivery | 5000 |
Personnel Costs/yr | 2570000 |
Truck Driver Cost/yr | 250000 |
Warehouse Personnel Cost/yr | 2320000 |
Warehouse Costs (excluding personnel) | 2000000 |
  |   |
Warehouse Personnel Costs/Carton | 29 |
Warehouse Costs (excluding personnel)/Carton | 25 |
Total Processing Costs | 54 |
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b. The cost of entering electronic and manual customer orders These costs are based on personnel costs. Manual costs consist of both entering basic information and an additional cost for each line item. The electronic entry has a single cost. Order Operators | 16 |

Order Entry Costs/yr | 840,000 |
Operator Hours/yr | 1750 |
Productive Operator Hours/yr | 1500 |
Total Productive Hours/yr | 24000 |
Total Operator Hours/yr | 28000 |
Average Time for Electronic Order | 0.1 |
Average Time for Manual Order |   |
Time to Enter Basic Information | 0.15 |
Time to Enter Each Line Item | 0.075 |
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Cost per Productive Hour | 35 |
Cost per Hour | 30 |
Cost per Electronic Order | 3.5 |
Cost per Manual Basic Information | 5.25 |
cost per Manual Entry - Each Line Item | 2.625 |
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c. The cost of shipping cartons on commercial carriers
Freight cost per carton is the total freight cost divided by the number of cartons shipped by commercial freight. Cartons/yr | 80,000 |
Cartons/yr - Commercial Freight | 75,000 |
Cartons/yr - Desktop Delivery | 5,000 |
Freight Costs/yr | 450,000 |
Freight Cost/Carton | 6 |
d. The cost per hour for desktop deliveries
The cost per hour for desktop deliveries includes the cost of both the drivers and the trucks (leasing, maintenance, etc.). MOP has four drivers working 1500 hours so the cost/hour is the total cost divided by 6000. Cartons/yr | 80,000 |

Cartons/yr - Commercial Feight | 75,000 |
Cartons/yr - Desktop Delivery | 5,000 |
Personnel Costs-yr (Truck & Warehouse) | 2,570,000 |
Truck Driver Cost/yr | 250,000 |
Warehouse Personnel Cost/yr | 2320000 |
Drivers Hours/yr | 1500 |
Total Desktop Deliveries | 2000 |
Average Cartons per Desktop Delivery | 2.5 |
Delivery Truck Expenses | 200000 |
Total Cost of Desktop Delivery/yr | 450000 |
Total # of Truck Drivers | 4 |
Total # of Driver Hours/yr | 6000 |
Cost/hr for Desktop Delivery | 75 |
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? In the previous costing system, MOP simply marked-up the purchased product cost by 16% to cover warehousing, order processing and freight and adding another 6% to cover general, selling and administrative expenses and building in an allowance for profit. The major difference is that their existing system does not distinguish between customers who pay late or customers who use different delivery (freight vs. delivery truck), they simply lump all these costs together and it becomes difficult to see which customers are the most profitable. We have calculated the profitability that breaks out the cost of both late payments and different delivery methods. Order | 1 | 2 | 3 | 4 | 5 |

Price | $610 | $634 | $6,100 | $6,340 | $6,100 |
Acquisition Cost | 500 | 500 | 5000 | 5000 | 5000 |
No. cartons in order | 1 | 1 | 10 | 10 | 10 |
No. cartons shipped commercially |...
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