Dakota Office Products Case Solution

Case ID: 102021
Solution ID: 2474

Author: Robert Lee

Words: 1529

Price: $19

Dakota, Office Products Business Case Abstract

The upper management group of Dakota, an office products supplier, is worried about the firm's novel hurt since it began operations. Looks into the part of activity-based costing and customer profitability estimation in a supplier firm. Dakota's clients are gradually expecting increasingly refined and skillful facilities, for example, desktop delivery. Additionally, compared to a few clients who have converted to electronic order placement, others continue to have order placements through the manual procedure. Pricing is grounded on a fixed profit percentage of the cost of the brought item. The supervisors are of the impression the inflexible markups may have been associated with processing the manual orders and desktop delivery. The financial manager commences an attempt to approximate the costs of managing the different orders types so that she is able to approximate the revenues that will be generated by each individual customer underpinned through the real order trend and pattern.

  • Customer B has higher overhead cost that actually thought, while customer A ended up with a lower overhead cost. This in return affected the net income. 
  • No limitations since all values are given.
  • Customer A pays their invoices faster than customer B, this is reflected on Average accounts receivable. DOP has to finance the $30K that customer B carries and in return pays 10% interest on that amount which in return even lower the Net Income for B.
  • Applying ABC to reset of the customer base, would give them a clear idea on how to markup their products or to tweak certain rules. For example, if a customer carries a higher balance (accounts receivable) a penalty or additional cost can be added to offset the interest and encourage customers to pay invoices faster. Also, the ability to simulate how each new product can affect the bottom line.
  • The activity rate would be cut in half if all orders went to an Internet site. Taking customer B as an example the 100 manual orders if they all went to EDI, this will eliminate # of line and manual orders and increase EDI from 0 to 100. The overhead per carton will decrease from $92.5 to $85 = 7% savings

Dakota, Business Solution Excel Calculation

Data entry time per activity

Dakota Office Products: Income Statement CY2000

Activity Cost drivers

Contribution to General and Selling expenses and Profits

Customer A

Customer B

Dakota, Office Products Case Questions Answers

Why was Dakota’s existing pricing system inadequate for its current operating environment? Develop an activity-based cost system for Dakota Office Products (DOP) based on Year 2000 data. Calculate the activity cost-driver for each DOP activity in 2000.

Using your answer to Question 2, calculate the profitability of Customer A and Customer B.

What explains any difference in profitability between the two customers?

What are the limitations, if any, to the estimates of the profitability of the two customers?

Is there any additional information you would like to have to explain the relative profitability of the two customers?

Assume that DOP applies the analysis done in Question 3 to its entire customer base. How could such information help the DOP managers increase company profits?

Suppose that a major customer switched from placing all its orders manually to placing all its orders over the internet site. How should this affect the activity cost driver rates calculated in Question 2? How would the switch affect DOP’s profitability?

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