Midwest Office Products

1.Based on the interviews and data in the case, we calculated the following information.

(1)The cost of processing cartons through the facility:

Personnel expense (warehouse, truck drivers)2,570,000
¡ÐCompensation for truck drivers ( 250,000)
Warehouse personnel expense $2,020,000
¡ÏWarehouse expenses (excluding personnel) 2,000,000 $4,020,000

(2) The cost of entering electronic and manual customer orders:

Order entry expenses $ 840,000

(3) The cost of shipping cartons on commercial carriers:

Freight $ 450,000

(4) The cost per hour for desktop deliveries:

Compensation for truck drivers $250,000
¡ÏDelivery truck expenses 200,000
The cost for desktop deliveries $450,000
¡Ò 6,000 hrs (1,500hr ¡Ñ 4) ¡Ò 6,000 $ 75

2. The cost and profitability of the five orders, using the cost driver information and its existing costing system:
(1) The ABC system:

Order 1 2 3 4 5
Sales $610.00 $ 634.00 $6,100.00 $6,340.00 $6,100.00
Cost of goods sold 500.00 500.00 5,000.00 5,000.00 5,000.00
Gross margin $110.00 $ 134.00 $1,100.00 $1,340.00 $1,100.00
Cost of : entering electronic order1a $ 3.50 $ ¡Ð $ 3.50 $ ¡Ð $ ¡Ð entering manual order1b ¡Ð 7.88 ¡Ð 31.50 31.50 processing cartons2 50.25 50.25 502.50 502.50 502.50 shipping cartons commercially3
6.00
¡Ð 60.00 ¡Ð 60.00 desktop deliveries ¡Ð 300.00 ¡Ð 300.00 ¡Ð interest on A/R balance 6.10 25.36 61.00 253.60 244.00 general and selling expenses4 20.00 20.00 200.00 200.00
200.00
subtotal ( 85.85) (403.49) (827.00) (1,287.60) (1,038.00)
Net income (loss) before tax $ 24.15 $(269.49) $ 273.00 $ 52.40 $ 62.00

(2) The existing costing system:

Order 1 2 3 4 5
Sales $610.00 $ 634.00 $6,100.00 $6,340.00 $6,100.00
Cost of goods sold 500.00 500.00 5,000.00