Midwest Office Products Management Accounting

Topics: Electronic Data Interchange, Costs, Shipping Pages: 5 (656 words) Published: November 27, 2014
Case Overview:
MidWest Office Product was a regional distributor of office supplies to institutions and commercial businesses. The company offered a comprehensive product line like simple writing implements and fasteners to specialty paper for modern high-speed copiers and printers. Warehouse personnel in the company’s distribution center unloaded truckload shipments from manufactures, and moved the cartons into designated storage location until customers request the items. Typically, the company shipped products to its customers using commercial truckers; however the MOP had introduced the new way of shipment which called a desktop delivery option in which the personnel delivered the products directly to the destinations at the customer’s site. The company believed that the new way of shipments would improve the margins and create more loyal customers in its competitive market. Moreover, the MOP introduced the electronic data interchange, which allowed customers’ orders to arrive automatically into the system so that clerks wouldn’t have to enter the data manually. John Malone, general manager of Midwest Office Products, was concerned about the financial results of his business for a calendar year 2013. Malone was concerned that even after introducing the innovations, the company couldn’t earn a profit. The company’s management team decided to check out: What actions he should take to regain the profit?

What profits Midwest Office Products had really earned on each of the orders stated?

Case Solutions:
According to calculations made on the Excel sheet, we think that in order for MOP regain the profits the company should look on the following recommendations: 1) To encourage customers to use more efficient and cheaper types of channels, like in this case the EDI. As you could see on the excel sheet 1 the electronic entry costs $3.50 which is the cheapest way of entering the information about the orders. 2) Improve the efficiency of the warehouse operations and order-entry process ( manual and electronic). We could recommend to decrease the amount of order-entry operators. The following action will help the company to decrease the costs on personnel. 3) To improve the Desktop Delivery option meaning to introduce the specific charges for the following options depending on the amount of drop points, distance, time consumed for travelling If the cost for Desktop Delivery is $75 per hour, the company should introduce the specific charges for a such delivery because it costs almost 5 times higher as the commercial freight. 4) It’s highly recommended to minimize the amount of small orders, may be it would be efficient to establish the minimum order size or put the minimum price for an order

1) The cost of entering the order ( manual/electronic)
 
 
 
 
 
Hours
Min
Min
Min
Order-entry operates
16
 
 
 
Order entry expenses
$ 840,000.00
 
 
 
Overall working hours/year
1750
 
 
 
Productive hours/year
1500
 
 
 
Time required for manual entering (hours)
0.225
13.5
0.15
0.075
Time required for electronic entering (hours)
0.1
6
 
 
 
 
 
 
 
 
 
 
 
 
Cost for general hour
$ 30.00
 
 
 
Cost for productive hour
$ 35.00
 
 
 
Cost per electronic order ( productive hour)
$ 3.50
 
 
 
Cost for manual simple information entering ( productive hour) $ 5.25
 
 
 
Cost for manual entry each line ( productive hour)
$ 2.63
 
 
 

2)
Cost per carton for processing in warehouse
 
 
 
 
 
Cartons/year
80000
 
Commercial freight
75000
 
Direct Delivery
5000
 
Warehouse expenses excluding personnel
$ 2,000,000.00
 
Personnel expense
$ 2,570,000.00
 
Truck drivers' expense
$ 250,000.00
 
Warehouse personnel expense
$ 2,320,000.00
 
 
 
 
Total cost...
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