Midwest office Products
Essay by christopherjhenr • September 9, 2015 • Coursework • 1,339 Words (6 Pages) • 2,607 Views
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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