Exhibit 6-10 Midwest Office Products: Five Orders ORDER Price Acquisition cost 1 2 3 4 5...

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Exhibit 6-10 Midwest Office Products: Five Orders ORDER Price Acquisition cost 1 2 3 4 5 $610 $634 $6,100 Number of cartons in order $6,340 $6,100 500 500 5,000 5,000 5,000 Manual order Number of cartons shipped commercially Desktop delivery time (hours) 1 1 10 10 1 0 10 0 4 4 Number of line items in order No Yes No Yes Yes 1 Electronic order Payment period (months) 10 10 Yes No Yes No 1 1 4 .81 == No 4 Source: Robert S. Kaplan Required (a) Based on the interviews and the data in the case, estimate the following: (1) The cost of processing cartons through the facility (2) The cost of entering electronic and manual customer orders (3) The cost of shipping cartons on commercial carriers (4) The cost per hour for desktop deliveries. (b) Using this capacity cost rate information, calculate the cost and profitability of the five orders in Exhibit 6-10. What explains the variation in profitability across the five orders? (c) On the basis of your analysis, what actions should John Malone take to improve Midwest's profitability? Include suggestions for managing customer profitability. (d) Suppose that currently, Midwest processes 40,000 manual orders per year, with a total of 200,000 line items entered, and 30,000 electronic orders. (1) How much unused practical capacity does the company have? (2) If the company's efforts to encourage customers who order manually to change to electronic ordering results in 20,000 manual orders per year (100,000 line items entered) and 50,000 electronic orders, how many order entry operators will the company require? If order entry resource costs can be reduced in proportion to the number of employees, what will be the cost savings from the changes? (3) Returning to the original information in part d, if the company's process improvement efforts result in a 20% reduction in time to perform each of the three order entry activities, how many order entry operators will the company require? If order entry resource costs can be reduced in proportion to the number of employees, what will be the cost savings from the process improvements? Exhibit 6-10 Midwest Office Products: Five Orders ORDER Price Acquisition cost 1 2 3 4 5 $610 $634 $6,100 Number of cartons in order $6,340 $6,100 500 500 5,000 5,000 5,000 Manual order Number of cartons shipped commercially Desktop delivery time (hours) 1 1 10 10 1 0 10 0 4 4 Number of line items in order No Yes No Yes Yes 1 Electronic order Payment period (months) 10 10 Yes No Yes No 1 1 4 .81 == No 4 Source: Robert S. Kaplan Required (a) Based on the interviews and the data in the case, estimate the following: (1) The cost of processing cartons through the facility (2) The cost of entering electronic and manual customer orders (3) The cost of shipping cartons on commercial carriers (4) The cost per hour for desktop deliveries. (b) Using this capacity cost rate information, calculate the cost and profitability of the five orders in Exhibit 6-10. What explains the variation in profitability across the five orders? (c) On the basis of your analysis, what actions should John Malone take to improve Midwest's profitability? Include suggestions for managing customer profitability. (d) Suppose that currently, Midwest processes 40,000 manual orders per year, with a total of 200,000 line items entered, and 30,000 electronic orders. (1) How much unused practical capacity does the company have? (2) If the company's efforts to encourage customers who order manually to change to electronic ordering results in 20,000 manual orders per year (100,000 line items entered) and 50,000 electronic orders, how many order entry operators will the company require? If order entry resource costs can be reduced in proportion to the number of employees, what will be the cost savings from the changes? (3) Returning to the original information in part d, if the company's process improvement efforts result in a 20% reduction in time to perform each of the three order entry activities, how many order entry operators will the company require? If order entry resource costs can be reduced in proportion to the number of employees, what will be the cost savings from the process improvements?