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Case 10 Happy Chips Essay

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Performance Control at Happy Chips Incorporated

Table of Contents

Abstract…………………………………………………………………………………………....3
Performance Control at Happy Chips Incorporated……………..…………………………….4 – 7
Happy Chips Segment Profitability Analysis……………………………………………………..8
Happy Chips Income Statement and Annual Logistics Cost by Segment….……………………..9
References………………………………………………………………………………………..10

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Abstract

The director of logistics at Happy Chips Incorporated had recently circulated a letter that came from the only mass merchandiser, Buy 4 Less, complaining of poor performance. Buy 4 Less is looking for Happy Chips to increase deliveries by one per
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Ironically enough, the mass merchandise segment produces over twenty-seven percent of unit sales and just under twenty-two percent of the revenue, but loses $878.40 annually due to the expensive labeling requirement of Buy 4 Less. Buy 4 Less has required Happy Chips to produce a sticker or label that would cover the suggested retail price with the new Buy 4 Less price. This machine has an annual rental fee of $5,000, throw in labor and material cost and you can add $.03 per unit. Buy 4 Less accounts for 22,000 annual sales causing Happy Chips to pay an additional $5,660 annually that is not required in the grocery or drug segment. Buy 4 Less has now presented Happy Chips with three new service requests that must be accomplished to remain a supplier. The first request is to add one extra delivery a week to eliminate stockouts. The current annual delivery for Buy 4 Less is three deliveries a week to three locations at $6.00 per delivery. One extra delivery a week does not sound unreasonable; however, Happy Chips has to also add the stocking cost of $2.80 per delivery. This one extra delivery will cost Happy Chips an additional $936 in delivery costs and $436.80 is stocking costs for a total of $1,372.80 in additional fixed costs. Happy Chips is already losing $878.40 annually and this would take that figure up to $2,251.20 in annual loss. The second request they are
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