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) 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…
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