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 “desktop” delivery, then the actual cost of it)
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
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
B Customer A...
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