CASE: BRANT FREEZER COMPANY
Question 1: When comparing performance during the first five months of 2004 with performance in 2003, which warehouse shows the most improvement?
St. Louis is the only one showing any improvement, using cost per unit shipped as the performance criterion. The cost for the first five months of 2003 was $9.97 and for the first five months of 2004, it fell to $9.07.
Question 2: When comparing performance during the first five months of 2004 with performance in 2003, which warehouse shows the poorest change in performance?
The worst change is the company’s own warehouse (located in Fargo), where costs per unit shipped increased 31%. Among the public warehouses used, Denver was the worst in terms of cost per unit
Multiplying this by 6/7 yields projected six months’ costs of approximately $116,204.
Question 6: When comparing 2003 figures with the 2004 figures shown in Exhibit 13-A, the amount budgeted for each warehouse in 2004 was greater than actual 2003 costs. How much of the increase is caused by increased volume of business (units shipped) and how much by inflation?
There are several ways to approach this question. One involves calculating the volume difference and inflation difference for each warehouse, as follows:
Volume difference = 2003 unit costs x (2004 units shipped – 2003 units shipped)
Inflation difference = 2004 units shipped x (2004 unit costs – 2003 unit costs)
For example, Atlanta’s volume and inflation differences are:
Volume difference: $8.99 x (18,000 – 17,431) = $8.99 x 569 = $5,115
Inflation difference: 18,000 x ($9.97 - $8.99) = 18,000 x $.98 = $17,640
Question 7: Prepare the firm’s 2005 warehousing budget, showing for each warehouse the anticipated number of units to be shipped and the costs.
Again, this can be done in several ways. One is to assume that the 2004 to 2005 increases will be exactly the same amount as the 2003 to 2004 increases (with units shipped rounded to the nearest hundred, and costs rounded to the nearest $500). This would yield the following results: Warehouse location | Differences in units shipped b/w 2003 and 2004 | Units shipped in 2004 | Projected