Solve for b, c, and d 1, 2, 3

Exhibit 6-10 Midwest Office Products: Five Orders

Order	1	2	3	4	5
Price	$610	$634	$6,100	$6,340	$6,100
Acquisition Cost	500	500	5,000	5,000	5,000
Number of cartons in order	1	1	10	10	10
Number of cartons shipped commercially	1	0	10	0	10
Desktop delivery time (hours)	-	4	-	4	-
Manual order	No	Yes	No	Yes	Yes
Number of line items in order	1	1	10	10	10
Electronic order	yes	no	yes	no	no
Payment period (months)	1	4	1	4	4

The cost of processing cartons through the facility = $54 per carton

The cost of entering electronic and manual customer orders = electronic $3.50, manual $5.25

The cost of shipping cartons on commercial carriers = $6 per carton

The cost per hour for desktop deliveries = $75 per hour

(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?