Dakota Office Products

Dakota Office Products Study Case Why was Dakota’s existing pricing system inadequate for its current operating environment? – profits only when clients placed large orders for cartons – real drop of profit if many clients place small orders – wrong cost determination for individual customers wrong cost determination for new services provided by DOP (to small charges for the â€Å"desktop† delivery, then the actual cost of it) 2. Develop an activity-base cost system for Dakota Office Products based on Year 200 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 o 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 One: process cartons in and out of the facility –> Number of cartons ordered Activity Two: the new desktop delivery service –> Number of desktop deliveries Activity Three: order handling –> Number of orders (manual + EDI) Activity Four: data entry –> Number of line items Manufacturing Overhead cost-driver rates Customer A Customer B Customer A†¦ Dakota Office Products Dakota Office Products Study Case Why was Dakota’s existing pricing system inadequate for its current operating environment? – profits only when clients placed large orders for cartons – real drop of profit if many clients place small orders – wrong cost determination for individual customers wrong cost determination for new services provided by DOP (to small charges for the â€Å"desktop† delivery, then the actual cost of it) 2. Develop an activity-base cost system for Dakota Office Products based on Year 200 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 o 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 One: process cartons in and out of the facility –> Number of cartons ordered Activity Two: the new desktop delivery service –> Number of desktop deliveries Activity Three: order handling –> Number of orders (manual + EDI) Activity Four: data entry –> Number of line items Manufacturing Overhead cost-driver rates Customer A Customer B Customer A†¦