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# Case 18-6

## Midwest Office Products

Step 1: We need to calculate the per unit cost (per carton) for each line item
Item 1: Personnel Expenses and Warehouse expenses
Particulars
Cost
Personnel Cost
\$2,570,000.00
Less: Delivery
\$200,000.00
Total Cost
\$2,370,000.00
Total Units
80,000.00
Per unit Cost
\$29.63
Warehouse Cost
Per Unit Cost
Total Per unit Cost

Particulars
Freight total
Cartons sent
Per Unit Cost

\$2,000,000.00
\$25.00
\$54.63

Cost
\$450,000.00
75,000.00
\$6.00

Particulars
Cost
Truck Expenses
\$200,000.00
Driver Salary
\$250,000.00
Total Cost
\$450,000.00
Delivery Hours
6,000.00
Per hour cost
\$75.00

## Item 4: Order Entry Expenses

Particulars
Cost
Order Entry TC
\$840,000.00
Total work hours
24,000.00
Per hour cost
\$35.00
For different operations:
Manual Order
\$5.25
Line item entry per unit
\$2.63
Verification of EDI
\$3.50

## Item 5: General and selling expenses

General and selling expenses are charged on total cost instead of individual items

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Case 18-6
Step 2: We now use the above calculation per unit cost for each of the five items
Order
Selling Price
Order Size
Total Merchandise cost
Personnel/warehouse
Coomercial Carrier
Delivery Truck Costs
Order Entry Costs:
Manual Order + Line item
Verification of EDI
Time to recovery
Finance Cost
Overall Cost
Profit per order
Profit in %

1
\$610.00
1
\$500.00
\$54.63
\$6.00
\$0.00

2
\$634.00
1
\$500.00
\$54.63
\$0.00
\$300.00

3
\$6,100.00
10
\$5,000.00
\$546.25
\$60.00
\$0.00

4
\$6,340.00
10
\$5,000.00
\$546.25
\$0.00
\$300.00

\$0.00
\$3.50
\$564.13
1
\$6.10
\$570.23
\$39.78
6.52%

\$7.88
\$0.00
\$862.50
4
\$25.36
\$887.86
-\$253.86
-40.04%

\$0.00
\$3.50
\$5,609.75
1
\$61.00
\$5,670.75
\$429.25
7.04%

\$31.50
\$0.00
\$5,877.75
4
\$253.60
\$6,131.35
\$208.65
3.29%

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Case 18-6

e item

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Case 18-6

e five items
5
\$6,100.00
10
\$5,000.00
\$546.25
\$60.00
\$0.00
\$31.50
\$0.00
\$5,637.75
4
\$244.00
\$5,881.75
\$218.25
3.58%

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Case 18-5
Sippican Corporation (B)

Step 1: We need to re-look at the proposed plan and assess the requirement at each line activity at f
1. Labour Hours:
Total Labor
Original Labor Hours
Current Hours
Reduction needed
Total Labor needed
Unused Time
Per Unit Cost

90
13500
10800
20.00%
72
2700
\$26.00

Labor (45*2)
Hours (45*2*7.5*20)
Hours (Given)
In labor Hours
Labor (10800Hrs/(13500/90))
Hours

2. Machine Expenses
Total Machines
Original Machine Hrs.
Current Hours
Reduction needed
Total Machines needed
Unused Time
Per Unit Cost

62
14880
11750
21.03%
49
3130
\$22.50

Hours
Hours (62*6*2*20)
Hours (Given)
In Machine Hours
Machines (11750Hrs/(14880/62)
Hours

3. Setup Labor
Total Labor
Original Labor Hours
Current Hours
Reduction needed
Total Setup Labor Needed
Unused Time
Per Unit Cost

30
4500
832
81.51%
6
3668
\$26.00

Labor (15*2)
Hours (15*2*7.5*20)
Hours (Given)
In Setup Labor
Labor (832Hrs/(4500/30))
Hours

## 4. Receiving and Production

Total Labor
Original Labor Hours
Current Hours
Reduction needed
Total Needed for Setup
Unused Time
Per Unit Cost

4
600
195
67.50%
1
405
\$26.00

Labor
Hours
Hous (Given)
Receiving and Prodn.
Labor (195Hrs/(600/8))
Hours

5. Engineering
Total Labor
Original Labor Hours
Current Hours

8 Engineers
1200 Hours (8*7.5*20)
700 Given

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Case 18-5
Reduction needed
Total Engineers Needed
Unused Time
Per Unit Cost

41.67% Engineering
5 Engineers (700Hrs/(1200/8))
500 Hours
\$65.00

## 6. Packaging and Shipping

Total Labor
Original Labor Hours
Current Hours Shipment
Current Hours Packaging
Current Total Hours
Total Labor Needed
Per Unit Cost

28
4200
175
3267
3442
23
\$26.00

Labor (14*2)
Hours (14*2*7.5*20)
Hours
Hours
Hours
Labor (3442Hrs/(4200/28))

Step 2: We now use the calculation above to find the Total Cost. Excluding unused time.
Particulars
Units Sold
Sales Revenue
Less: Material Cost
Less Direct Labor (in Proportion)
Contribution Margin
Machine Expenses
Setup Labor
Receiving and Production
Engineering
Packaging and Shipping Hours
Cost of Packaging and Shipping
Gross Margin
Per Division Gross Margin%
Given

Valves
10000
\$750,000.00
\$160,000.00
\$98,800.00
\$491,200.00

12000
\$960,000.00
\$240,000.00
\$156,000.00
\$564,000.00

Flow Controllers
2500
\$275,000.00
\$55,000.00
\$26,000.00
\$194,000.00

\$112,500.00
\$4,160.00
\$1,560.00
\$3,900.00
1367
\$35,542.00
\$333,538.00
44.47%
35.00%

\$135,000.00
\$4,992.00
\$1,560.00
\$15,600.00
1633
\$42,458.00
\$364,390.00
37.96%
5.00%

\$16,875.00
\$12,480.00
\$1,950.00
\$6,500.00
367
\$9,542.00
\$146,653.00
53.33%
38.00%

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Pumps

Case 18-5

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Case 18-5

Total
24500
\$1,985,000.00
\$455,000.00
\$280,800.00
\$1,249,200.00
\$264,375.00
\$21,632.00
\$5,070.00
\$26,000.00
\$87,542.00
\$844,581.00
42.55%
138.00%

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