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Midwest office Products

Essay by   •  September 9, 2015  •  Coursework  •  1,339 Words (6 Pages)  •  2,431 Views

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SUMMARY

Midwest Office Products experienced its first-ever net loss for calendar year 2003 despite an increase in sales over the previous year.  To uncover the causes and make course corrections to prevent this from happening again, General Manager John Malone decided to investigate his costs and profitability numbers to find more detail than what he could see in the income statement.  Below is the 2003 income statement and the costs that Mr. Malone and his staff were able to calculate based on interviews with each operational area within the company.  

Midwest Office Products

Income Statement

January - December 2003

Sales

 $42,700,000

122.0%

Cost of Items purchased

 $35,000,000

100.0%

Gross margin

 $7,700,000

22.0%

Personnel Expense (warehouse, truck drivers)

 $2,570,000

7.3%

Warehouse Expense (excluding personnel)

 $2,000,000

5.7%

Freight

 $450,000

1.3%

Delivery truck expenses

 $200,000

0.6%

Order entry expenses

 $840,000

2.4%

General and Selling expenses

 $1,600,000

4.6%

Interest expense

 $120,000

0.3%

Net income before taxes

 $(80,000)

-0.2%

Cost of Processing Cartons Through the Facility

Cartons/Year

80000

Cartons/Year/Commercial Freight

75000

Cartons/Year/Desktop Delivery

5000

Personnel Costs/Year - Truck and Warehouse

 $2,570,000

Personnel Costs/Year - Truck

 $250,000

Personnel Costs/Year - Warehouse

 $2,320,000

Warehouse cost (excluding personnel)

 $2,000,000

Warehouse cost (including personnel)/carton

 $29.00

Warehouse cost (excluding personnel)/carton

 $25.00

Total Cost per carton

 $54.00

The total cost of processing each carton through the facility is $54.00.

Cost of Entering Electronic and Manual Customer Orders

Order Operators

16

Order Entry Cost/Year

 $840,000

Operator Hours/Year

1750

Productive Operator Hours/Year

1500

Total Productive Hours/Year

24000

Total Operator Hours/Year

28000

Avg Time/Electronic Order

0.1

Entry time for basic information

0.15

Entry time per line item

0.075

Cost per/productive hr

 $35.00

Cost per Operator/hr

 $30.00

Cost per Electronic Order (per Productive Hr)

 $3.50

Cost per Manual Basic Information  (per Productive Hr)

 $5.25

Cost per Manual Entry - Each Line Item (per Productive Hr)

 $2.63

MOP’s cost to enter each electronic order is $3.50.

MOP’s cost for entering manual orders contains both a fixed and variable component.  Each manual order costs the company $5.25 plus $2.63 per line item on the order.

Cost of Shipping Cartons on Commercial Carriers

Cartons/Year

80,000

Cartons per Year/Commercial Freight

75,000

Cartons per Year/Desktop Deliver

5,000

Freight costs per year

 $450,000

Freight Costs per carton

 $6.00

The cost to ship via commercial carrier is $6.00 per carton.

Cost per Hour for Desktop Deliveries

Truck Driver Costs per year

 $250,000

Delivery Truck Expenses

 $200,000

Total Costs of Desktop Deliveries

 $450,000

Total Number of Driver Hours/year

6000

Cost/Hour for Desktop Delivery

 $75.00

Shipping via desktop delivery costs MOP $75 per hour.

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