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    Dakota Office Products Case Study

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    Ankit Tiwari
    Dakota Office Products uses a traditional costing system that assigns costs to products and services for customers. This system does not accurately capture costs related to activities and resources used for different customers and services. An activity-based costing system would better determine costs for individual customers and new services based on the resources consumed and activities involved. While Customer B has higher sales, Customer A is more profitable due to lower costs associated with orders and data entry. Dakota Office Products should analyze profitability for all customers to focus efforts on the most profitable accounts.

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    Dakota Office Products Case Study

    Uploaded by

    Ankit Tiwari
    180 views12 pages
    Dakota Office Products uses a traditional costing system that assigns costs to products and services for customers. This system does not accurately capture costs related to activities and resources used for different customers and services. An activity-based costing system would better determine costs for individual customers and new services based on the resources consumed and activities involved. While Customer B has higher sales, Customer A is more profitable due to lower costs associated with orders and data entry. Dakota Office Products should analyze profitability for all customers to focus efforts on the most profitable accounts.

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    Dakota Office Products uses a traditional costing system that assigns costs to products and services for customers. This system does not accurately capture costs related to activities and resources used for different customers and services. An activity-based costing system would better determine costs for individual customers and new services based on the resources consumed and activities involved. While Customer B has higher sales, Customer A is more profitable due to lower costs associated with orders and data entry. Dakota Office Products should analyze profitability for all customers to focus efforts on the most profitable accounts.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    180 views12 pages

    Dakota Office Products Case Study

    Uploaded by

    Ankit Tiwari
    Dakota Office Products uses a traditional costing system that assigns costs to products and services for customers. This system does not accurately capture costs related to activities and resources used for different customers and services. An activity-based costing system would better determine costs for individual customers and new services based on the resources consumed and activities involved. While Customer B has higher sales, Customer A is more profitable due to lower costs associated with orders and data entry. Dakota Office Products should analyze profitability for all customers to focus efforts on the most profitable accounts.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 12

    ACCTG 533 OMBA

    Dakota Office Products Case Exhibits

    Exhibit 1 Dakota Office Products: Income Statement CY2000


    % of cost of items
    Sales $ 42,500,000 121.4%
    Cost of items purchased 35,000,000 100.0%
    Gross margin $ 7,500,000 21.4%
    Warehouse personnel expense 2,400,000 6.9%
    Warehouse expenses (excluding personnel) 2,000,000 5.7%
    Freight 450,000 1.3%
    Delivery truck expenses 200,000 0.6%
    Order entry expenses 800,000 2.3%
    General and selling expenses 2,000,000 5.7%
    Interest expense 120,000 0.3%
    Net income before taxes $ (470,000) -1.3%

    Exhibit 2 Customer Profitability Report (Current Method)


    Customer A Cust A % Customer B
    Sales $ 103,000 121.2% $ 104,000
    Cost of items purchased 85,000 100.0% 85,000
    Gross margin $ 18,000 21.2% $ 19,000
    Warehousing, Distribution, and Order Entry 12,750 15.0% 12,750
    Contrib to gen and sell exp and profit 5,250 6.2% 6,250

    Exhibit 3 Services Provided in Year 2000 to Customers A and B


    Customer A Customer B
    Number of cartons ordered 200 200
    Number of cartons shipped commercial 200 150
    Number of desktop deliveries - 25
    Number of orders, manual 6 100
    Number of EDI orders 60 180
    Average accounts receivable 6 -
    $ 9,000 $ 30,000
    Cust B %
    122.4%
    100.0%
    22.4%
    15.0%
    7.4%
    There are many problems with the pricing system for
    the current operating environment. Among them
    are:
    Profits are only seen when clients place large orders
    for crates

    Wrong cost determination for individual customers


    Wrong cost determination for new services that are
    to be provided by DOP

    Drop in profit when many clients place small orders

    DOP uses a traditional costing system wherein they


    assign direct and indirect costs to products and
    services that are delivered to customers. This
    system is better served to companies that have
    highly labor intensive production, with lower
    overhead costs. Activity based costing would be
    better, as they would better be able to calculate the
    cost of products and services in relation to resources
    consumed and activities involved.
    /per line
    Profitability
    Activity Cost Driver Rate Customer A Customer B
    Process Cartons In &
    Out of Facility $464.40 $92,880.00 $92,880.00
    Desktop Delivery
    Price $220.00 $5,500.00
    Order Handling $102.08 $1,224.96 $10,208.00
    Date Entry $5.30 $318.00 $954.00
    Total Cost $94,422.96 $109,542.00
    Sales $103,000.00 $104,000.00
    Proft $8,577.04 $5,542.00
    Customer A Cust A % Customer B

    Sales $ 103,000 121.2% $ 104,000

    Cost of items purchased 85,000 100.0% 85,000


    Gross margin $ 18,000 21.2% $ 19,000
    Warehousing, Distribution, and Order Entry 12,750 15.0% 12,750
    Contrib to gen and sell exp and profit 5,250 6.2% 6,250

    Customer A Customer B
    Number of cartons ordered 200 200
    Number of cartons shipped commercial 200 150
    Number of desktop deliveries - 25
    Number of orders, manual 6 100
    Number of EDI orders 60 180
    Average accounts receivable 6 -
    $ 9,000 $ 30,000
    Cust B %

    122.4%

    100.0%
    22.4%
    15.0%
    7.4%
    Even though Customer B has more in sales, they
    have larger costs associated with both manual and
    EDI orders, which led to lower profitability.
    Limitations include correctly determining
    bothh cost drivers and estimating cost
    pools.
    I would like to know the profitability rate,
    as it could help increase sales numbers for
    each customer.
    Dakota Office Products should do a profitability
    analyis with all of their customers to maximize
    efforts for the most profitable customers. They
    could also move away from a standard delivery fee
    toward a fe based on distance from shipping center.
    All cost drivers except for data entry would increase, and DOP
    would see increased profits as a result of lowered data entry
    costs.

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