Midwest Office Product

Gaurav Ajmani Indian Institute of Management, Ahmadabad Global Management Program 9th Batch, Dubai Midwest Office Product Particulars Sales COGS Gross Margin Per Exps (W/H) Per Exps (Truck Drivers) W/H Exps (Excl Pers) Freight Delivery Truck Expenses Order Entry Expenses Gen & Selling Interest Expenses Net Income No. of Cartons in Order No. of Cats Shipped Comm No. of Cartons Shipped DD DD Time (Hours) Manual Order No. Line Items in Order Electronic Order Payment Period (Months)

Jan- Dec 03 42,700,000 35,000,000 7,700,000 2,320,000 250,000 2,000,000 450,000 200,000 840,000 1,600,000 120,000 80,000

% 122.0% 100.0% 22.0% 6.6% 0.7% 5.7% 1.3% 0.6% 2.4% 4.6% 0.3% -0.2%

80,000 75,000 5,000

Order 1

Order 2

Order 3

Order 4

610.0 500.0 110.0 29.0 25.0 6.0 3.5 6.1 40.4

634.0 500.0 134.0 29.0 166.7 25.0 133.3 7.9 25.4 - 253.2

6,100.0 5,000.0 1,100.0 290.0 250.0 60.0 3.5 61.0 435.5

6,340.0 5,000.0 1,340.0 290.0 166.7 250.0 133.3 31.5 253.6 214.9

6,100.0 5,000.0 1,100.0 290.0 250.0 60.0 31.5 244.0 224.5

1 1 No 1 Yes 1

1 1 4 Yes 1 No 4

10 10 No 10 Yes 1

10 10 4 Yes 10 No 4

10 10 Yes 10 No 4

Personnel Expenses Per Carton = 2,320,000/80000 = 29 Truck Driver Expenses Per Hour = 250000/1500/4 = 41.67 Warehouse Expenses Per Carton = 2,000,000 / 80,000 = 25 Freight Expenses Per Carton = 450,000 / 75,000 = 6 Delivery Truck Expenses Per Hour = 200,000/1500/4 = 33.33 Order Entry Expenses Electronic = 840,000*0.1/1500/16 Order Entry Expenses Manual = 840,000*0.15/1500/16 + 840,000*0.075/1500/16 * No. of Line Items Interest Expenses = Sales * 1% * No. of Months Selling & General Expenses is not part of Order Based Costing. Key Issues & Solution to increase profitability: 1. Rethink DD Option, at least for small orders. 2. Payment required in 30 Days or charge interest. 3. Use more of electronic system in order to reduce cost of operator entry.

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