# Midwest Office Products

Topics: Costs, Variable cost, Marginal cost Pages: 3 (677 words) Published: May 19, 2010
Questions for
Midwest Office Products
1. Based on the interviews and data in the case, estimate: a. The cost of processing cartons through the facility
80000 total cartons
Warehouse expenses = \$2000000
Warehouse personnel expenses = \$2570000-\$250000 (truck driver expenses) = \$2320000

Total warehouse processing expenses: \$2000000 + \$2320000 = \$4,320,000 \$4320000/80000= \$54/carton

b. The cost of entering electronic and manual customer orders Manual: .15 hours setup time, .075 hours to enter each line Electronic: .1 hours to verify information on the electronic order 16 order entry operators

\$840000 in total compensation
Each order entry operator worked 1750 hours per year but only 1500 hours per year of productivity

840000/16 = \$52500 avg salary per operator
\$52500/1500hrs = \$35 per hour

Electronic orders: .1hrs *\$35/hr = \$3.5/electronic order
Manual Orders: .15*\$35 +.075*\$35*number of lines= cost per order
Input cost=.15*35 = 5.25
Cost per line = .075*35 = 2.63

c. The cost of shipping cartons on commercial carriers
75000 cartons shipped
\$450000 spent on freight

\$450000/75000 cartons = \$6 per carton

d. The cost per hour for desktop deliveries
avg delivery time=3 hours
5000 cartons shipped
2000 deliveries2.5 cartons each delivery
\$250000 total compensation per year
\$200000 for delivery truck expenses
Each driver worked 1500 hours per year \$166.67/hr

Driver compensation: \$250000/2000 = \$125 per delivery
Truck expenses: \$200000/2000 = \$100 per delivery
Total cost for desktop deliveries: \$225/3 hrs = \$75/hr

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? Exhibit 2| Five Orders| | | | | | |

| | | | | | | | |
Order|  |  |  | 1| 2| 3| 4| 5|
Price| | | | \$ 610 | \$ 634 | \$ 6,100 | \$...