case study
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 profits 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-bases cost system for Dakota Office Products (DOP) based on Year 2000 data. Calculate the activity cost-driver rate for each DOP activity in 2000.
Activity cost-driver rate:
Activity one; process cartons in and out of the facility 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
Activity Three 102. 08 12 100 1224.96 102,08
Activity Four 5.3 60 180 318 954 94, 442.96 109,562
Profitability contribution to general and selling expenses = number of cartons ordered (general and selling expenses + internet expenses/cartons processed
Contribution to general and selling
Profits only when clients placed large orders for cartons
Real drop of profits 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-bases cost system for Dakota Office Products (DOP) based on Year 2000 data. Calculate the activity cost-driver rate for each DOP activity in 2000.
Activity cost-driver rate:
Activity one; process cartons in and out of the facility 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
Activity Three 102. 08 12 100 1224.96 102,08
Activity Four 5.3 60 180 318 954 94, 442.96 109,562
Profitability contribution to general and selling expenses = number of cartons ordered (general and selling expenses + internet expenses/cartons processed
Contribution to general and selling