Midwest office Products
Essay Preview: Midwest office Products
Report this essay
SUMMARYMidwest 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 ProductsIncome StatementJanuary – December 2003Sales $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 FacilityCartons/Year80000Cartons/Year/Commercial Freight75000Cartons/Year/Desktop Delivery5000Personnel Costs/Year – Truck and Warehouse $2,570,000 Personnel Costs/Year – Truck $250,000 Personnel Costs/Year – Warehouse $2,320,000Warehouse 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 OrdersOrder Operators16Order Entry Cost/Year $840,000 Operator Hours/Year1750Productive Operator Hours/Year1500Total Productive Hours/Year24000Total Operator Hours/Year28000Avg Time/Electronic Order0.1Entry time for basic information0.15Entry time per line item0.075Cost 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 CarriersCartons/Year80,000Cartons per Year/Commercial Freight75,000Cartons per Year/Desktop Deliver5,000Freight 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 DeliveriesTruck Driver Costs per year $250,000 Delivery Truck Expenses $200,000 Total Costs of Desktop Deliveries $450,000 Total Number of Driver Hours/year6000Cost/Hour for Desktop Delivery $75.00 Shipping via desktop delivery costs MOP $75 per hour.