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

ÐŽÐ Compensation for truck drivers ( 250,000)

Warehouse personnel expense $2,020,000

ЎПWarehouse 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

ЎПDelivery truck expenses 200,000

The cost for desktop deliveries $450,000

ЎТ 6,000 hrs (1,500hr ЎС 4) ЎТ 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 $ ÐŽÐ $ 3.50 $ ÐŽÐ $ ÐŽÐ

entering manual order1b ÐŽÐ 7.88 ÐŽÐ 31.50 31.50

processing cartons2 50.25 50.25 502.50 502.50 502.50

shipping cartons commercially3

6.00

ÐŽÐ

60.00

ÐŽÐ

60.00

desktop deliveries ÐŽÐ 300.00 ÐŽÐ 300.00 ÐŽÐ

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 5,000.00 5,000.00

Gross margin $110.00 $ 134.00 $1,100.00 $1,340.00 $1,100.00

Cost of :

warehousing, order processing, & freight5

$ 80.00

$102.50

$ 800.00

$1,025.00

$ 800.00

general, selling & interest expenses6

24.50

24.50

245.00

245.00

245.00