Dakota Office Products Case

Topics: Costs, Variable cost, Cost Pages: 4 (1236 words) Published: November 17, 2011
Dakota Office Products
(A)
Dakota Office Products Company priced its products to the customers by marking up the purchased product cost by about 15% to cover the cost of warehousing, distribution, and freight, and adding another markup to cover the approximate cost for general and selling expenses, and profit. This pricing system was inadequate for its current operating environment since each customer required different product ordering and distributing ways which cost differently. Moreover, according to the case scenario, we know that those costs that were considered in product pricing strategy were not accurately assigned to each order and needed to be finely reallocated. So, in order to set up a better pricing system for the company and help figuring out its current business operation issue, we need to analyze its cost and profitability using the Activity-Based Costing method.

(B)
Distribution of Resource Consumption across DOP Activity Cost Pools: DOP ActivitiesActivity Cost Pools
Process CartonsShip CartonsDesktop DeliveriesManual Customer OrdersEnter individual order linesProcess EDI/internet ordersTotal Warehouse Expense(excluding personnel)100%0%0%0%0%0%100% Warehouse Personnel Expense90%0%10%0%0%0%100%

Freight0%100%0%0%0%0%100%
Delivery Truck Expenses0%0%100%0%0%0%100%
Order entry expenses0%0%0%20%75%5%100%

First-Stage Allocations to DOP Activity Cost Pools
DOP ActivitiesActivity Cost Pools
Process CartonsShip CartonsDesktop DeliveriesManual Customer OrdersEnter individual order linesProcess EDI/internet ordersTotal Warehouse Expense(excluding personnel)$2,000,000$0$0$0$0$0$2,000,000 Warehouse Personnel Expense$2,160,000$0$240,000$0$0$0$2,400,000 Freight$0$450,000$0$0$0$0$450,000

Delivery Truck Expenses$0$0$200,000$0$0$0$200,000
Order entry expenses$0$0$0$160,000$600,000$40,000$800,000 Total$4,160,000$450,000$440,000$160,000$600,000$40,000...
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