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Midwest Office Products Case Study

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Midwest Office Products
1. Based on the interviews and data in the case, estimate:
a. The cost of processing cartons through the facility
Cost of process $2,320k + 2,000k = $4,320k
Practical Capacity 80k cartons
Cost rate for supplying capacity $54 per carton
b. The cost of entering electronic and manual customer orders
Cost of resources performing order entry $840k
Capacity of order entry resources 16 x 1.5k hrs 24k hours
Cost of order entry process $35 per hour
Assign costs based on use of resources
Entering a manual customer order 0.150*35 $5.25 / manual order
Entering a line item on order 0.075*35 $2.625 / line item
Validating an EDI order 0.100*35 $3.50 / EDI order
c. The cost of shipping cartons on commercial carriers
Cost of resources for commercial shipments $450k
Quantity of cartons shipped 75k cartons
Shipping costs per carton $6 per carton
d. The cost per hour for desktop deliveries
Cost of desktop delivery resources $200k +$250k = $450k
Number of hours avail for DD 4 * 1,500 = 6k hours
Cost rate for DD $75 per hour
2. Using this cost driver information, calculate the cost and profitability of the five orders in Exhibit 2. Compare these costs and profitability to those calculated by Midwest’s existing costing system?
12345Sales610.00$ 634.00$ 6,100.00$ 6,340.00$ 6,100.00$ Cost of items purchased500.00$ 500.00$ 5,000.00$ 5,000.00$ 5,000.00$ Gross margin110.00$ 134.00$ 1,100.00$ 1,340.00$ 1,100.00$ Processing cartons54.00$ 54.00$ 540.00$ 540.00$ 540.00$ Shipping cartons, commercial6.00$ -$ 60.00$ -$ 60.00$ Desktop deliveries-$ 300.00$ -$ 300.00$ -$ Process manual order-$ 5.25$ -$ 5.25$ 5.25$ Process line items, manual orders-$ 2.63$ -$ 26.25$ 26.25$ Validate EDI order3.50$ -$ 3.50$ -$ -$ Interest on receivable6.10$ 25.36$ 61.00$ 253.60$ 244.00$ Total processing costs69.60$ 387.24$ 664.50$ 1,125.10$ 875.50$ Order

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