Apparently it seems possible to get fewer orders in

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should try to get customers to order less frequently in larger amounts. (Apparently, it seems possible to get fewer orders in larger amounts, as shown by the experience in West District. However, this approach is contrary to the JIT trend which emphasizes smaller, more frequent orders. A better solution may be to use process re-engineering to reduce the costs of processing an order.) East District West District Sales in units ($20/unit) 15,000 10,000 Number of orders 3,000 500 Units per order 5 20 East District West District Contribution margin $109,000 $72,500 Number of orders 3,000 500 Contribution margin per order $36.33 $145 (ii) The salespersons in East District are far less effective than the salespersons in West District, as shown below: East District West District District sales $300,000 $200,000 Number of salespersons 8 4 Sales per salesperson $37,500 $50,000 (iii) West District's sales management salaries seem unusually high compared to East District's. Since they are paid the same amount, West District has 1.5 times ($15,000 / $10,000) the managers as East District. West District's "span of control"- i.e., the number of salespersons they supervise, is shown below: East District West District District sales mgmt. salaries $10,000 $15,000 Number of salespersons 8 4 Salaries per salesperson $12,500 $37,500 Thus, East District has a span of control 3 times that of West District. [Although having such high sales management salaries is not desirable, it may explain why West District's salespersons are far more effective than East District = s (see (ii) above)]. (iv) Although West District has the least sales, it has the highest advertising expense. This may be indicative of poorly directed or ineffective advertising. Perhaps the West District = s advertising programs should be coordinated through a company advertising manager to ensure consistency and effectiveness in overall advertising efforts. (v) West District has very high shipping (delivery) costs as compared to East District. Shipping costs per order are: East District West District Shipping expense $11,000 $15,000 Number of units sold 15,000 10,000 Shipping expense per unit $0.73 $1.50
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11 OR if one assumes shipping costs vary with orders (rather than units): East District West District Shipping expense $11,000 $15,000 Number of orders 3,000 500 Shipping expense per unit $3.67 $30 [It should also be noted that, since method of delivery is controlled by the salesperson and since they are compensated based on the sales price they do not have an incentive to control delivery costs- i.e., they have no incentive to use the cheapest delivery mode. Rather than having the salespersons specify the method of delivery, perhaps there should be a company policy as to the manner of shipment. This might avoid unnecessary shipments by the more expensive (air) method.] (vi) Both Districts have the same contribution margins per unit (36.3%). This contribution margin does not seem to justify the high fixed costs. West District = s fixed costs are much higher as a % than East = s, therefore, the manager for the West division should review these fixed costs and look for ways of reducing them.
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