Scribd Logo
Upload

Welcome to Scribd!

  • 25K views

    Dakota Office Products Case

    Uploaded by

    Kambria Butler
    Dakota's existing pricing system inadequate for its current operating environment. Dakota uses traditional costing system where direct and indirect costs are assigned and allocated to products and services delivered to customers. Develop an activity-based cost system for Dakota Office Products based on Year 2000 data.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd

    Dakota Office Products Case

    Uploaded by

    Kambria Butler
    25K views3 pages
    Dakota's existing pricing system inadequate for its current operating environment. Dakota uses traditional costing system where direct and indirect costs are assigned and allocated to products and services delivered to customers. Develop an activity-based cost system for Dakota Office Products based on Year 2000 data.

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Read this document in other languages

    Did you find this document useful?

    Is this content inappropriate?

    Dakota's existing pricing system inadequate for its current operating environment. Dakota uses traditional costing system where direct and indirect costs are assigned and allocated to products and services delivered to customers. Develop an activity-based cost system for Dakota Office Products based on Year 2000 data.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    25K views3 pages

    Dakota Office Products Case

    Uploaded by

    Kambria Butler
    Dakota's existing pricing system inadequate for its current operating environment. Dakota uses traditional costing system where direct and indirect costs are assigned and allocated to products and services delivered to customers. Develop an activity-based cost system for Dakota Office Products based on Year 2000 data.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Dakota Office Products Case 1.

    Why was Dakotas existing pricing system inadequate for its current operating environment?

    Some problems with the current operating environment include: Profits only when clients placed large orders for cartons Real drop of profit when many clients place small orders Wrong cost determination for individual customers Wrong cost determination for new services provided by DOP

    Dakota Office Product uses traditional costing system where direct and indirect costs are assigned and allocated to products and services delivered to customers. This is better for companies where production operations are high labor intensive and overhead costs are smaller part of total costs. Activity Based Costing is going to be better for Dakota Office Products. They will be able to calculate the cost of products and services in accordance to the activities involved and resources consumed.

    2. Develop an activity-based cost system for Dakota Office Products (DOP) based on Year 2000 data. Calculate the activity cost-driver rate for each DOP activity in 2000. Activity cost-driver rates: Activity One: process cartons in and out of the facility Rate=(90% of Warehouse Personnel Expense + Cost of Items Purchased)/cartons processed Rate=(90%*2,400,000+35,000,000)/80,000= $464.5 /per carton Activity Two: the new desktop delivery service Rate=(10% of Warehouse Personnel Expense + Delivery Truck Expenses)/desktop deliveries Rate=(10%*2,400,000+200,000)/2000= $220 /per carton Activity Three: order handling Rate= (Warehouse Expenses + Freight)/ number of orders Rate=(2,000,000+450,000)/(16,000+8,000)=$102.08 /per order

    Activity Four: data entry Rate=Order entry expenses/Order lines Rate=800,000/150,000= $5.3 orders/per line

    3. Using your answer to Question 2, calculate the profitability of Customer A and Customer B.

    Activity Process cartons in and out of the facility The new desktop delivery price Order handling

    Cost driver rate $464.5 carton

    Customer A per 92,900 (464.4*200 cartons)

    Customer B 92,900 (464.4*200 cartons)

    $220/desktop deliveries 102.08/per order

    Data entry

    1,224.96 (102.08*12 orders) 5.3 per line 318 (5.3*60 line 954 (5.3*180 line item items) items) 94,442.96 1,03,000 8557.04 1,09,562 10,4000 (5562)

    5,500 (220*25desktop deliveries) 10,208 (102.08*100 orders)

    Total Cost Sales Profit

    4. What explains any difference in profitability between the two custom The increase in cost due to increase in number of both manual and EDI orders has led to lower profitability of Customer B when compared to Customer A.

    5. What are the limitations, if any, to the estimates of the profitability of the two customers? Limitations include correctly estimating cost pools and correctly determining the cost drivers.

    6. Is there any additional information you would like to have to explain the relative profitability of the two customers? Knowing the profitability rate could help the company get higher sales per customer. They could raise the prices of their services for the more profitable customers and cut prices on some services used by their less profitable customers.

    7. Assume that Dakota applies the analysis done in Question 3 to its entire customer base. How could such information help the Dakota managers increase company profits? Dakota should do an analysis with all of its customers. This could identify the customers who they would profit from the most and then they could minimize services to the least profitable customers and concentrate on the more profitable customers. Also if they did an analysis, they would figure out that the delivery cost has some issue and the price for desktop delivery should be adjusted by the distance from the warehouse.

    8. Suppose that a major customer switched from placing all its orders manually to placing all its orders over the internet site. How should this affect the activity cost driver rates calculated in Question 2? How would the switch affect Dakotas profitability? The activity cost driver rates would increase if the major customer switched. This switch would increase DOPs Profits because of less indirect time and activity costs. The manual c ost driver would go down and desktop delivery charge driver would increase.

    You might also like