Dakota Office Products

In: Business and Management

Submitted By swohl2389
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1. 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* Customer B*
Activity One 464.5 200 200 92900 92900
Activity Two 220 0 25 0 5500…...

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