Dakota Office Products
MAC II
Dakota Office Products
Q1) Why was Dakota’s existing pricing system inadequate for its current operating environment? The existing policies being followed by Dakota regarding Accounts receivables are a major issue, which is affecting its payment of working capital line of credit (@10%). Customer A pays its bill within 30 days, whereas B takes up 90 days or more. Dakota can achieve sufficient liquidity, if it tightens its credit policy. | | | | |
2) Develop an activity based cost system for Dakota office products based on year 2000 data. Calculate the activity cost driver rate for each DOP activity in 2000.
Activities & Costs | Activities | Drivers | Costs | Ship Cartons | No. of cartons | Freight( commercial& Own) | Process Cartons | No. of cartons | Warehouse Costs(Rent, Personnel & Distribution) | Desktop Delivery | No. of deliveries | Delivery Truck & Warehouse Personnel | Processing Manual Orders | | Order Entry(Processing system& Operators) | Entering Items(Ordered manually) | No. of lines Entered | Order Entry | EDI Processing | Per EDI Order | Quick check of order entry |
Construction of Activity Based Cost System:
In the table that follows
Overhead Cost Items- description of the activity performed.
Source of Annual Cost- reference is provided for each cost item (either the numerical basis for the calculation or the reference exhibit in the case study as applicable). Annual Cost - contains the total cost in dollars. Estimated Annual Value- is the volume
Cost per Driver Unit-is the calculated allocation rate.
Other Costs
Interest was assigned at a rate of 10% of each customer’s average accounts receivable balance. General and Selling Expenses were allocated as the fraction of total sales
3) Using the answer to Question 2, calculate the profitability of customer A and customer B.
Profitability Comparison of Customers The results of the profitability analysis shown
Dakota Office Products
Q1) Why was Dakota’s existing pricing system inadequate for its current operating environment? The existing policies being followed by Dakota regarding Accounts receivables are a major issue, which is affecting its payment of working capital line of credit (@10%). Customer A pays its bill within 30 days, whereas B takes up 90 days or more. Dakota can achieve sufficient liquidity, if it tightens its credit policy. | | | | |
2) Develop an activity based cost system for Dakota office products based on year 2000 data. Calculate the activity cost driver rate for each DOP activity in 2000.
Activities & Costs | Activities | Drivers | Costs | Ship Cartons | No. of cartons | Freight( commercial& Own) | Process Cartons | No. of cartons | Warehouse Costs(Rent, Personnel & Distribution) | Desktop Delivery | No. of deliveries | Delivery Truck & Warehouse Personnel | Processing Manual Orders | | Order Entry(Processing system& Operators) | Entering Items(Ordered manually) | No. of lines Entered | Order Entry | EDI Processing | Per EDI Order | Quick check of order entry |
Construction of Activity Based Cost System:
In the table that follows
Overhead Cost Items- description of the activity performed.
Source of Annual Cost- reference is provided for each cost item (either the numerical basis for the calculation or the reference exhibit in the case study as applicable). Annual Cost - contains the total cost in dollars. Estimated Annual Value- is the volume
Cost per Driver Unit-is the calculated allocation rate.
Other Costs
Interest was assigned at a rate of 10% of each customer’s average accounts receivable balance. General and Selling Expenses were allocated as the fraction of total sales
3) Using the answer to Question 2, calculate the profitability of customer A and customer B.
Profitability Comparison of Customers The results of the profitability analysis shown