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Dakota Office Products

Dakota Office Products is a regional distributor of office supplies that experienced a sales increase but suffered its first loss. Activity-based costing could help the company better understand costs by allocating overhead to activity cost pools and assigning these pools to products using cost drivers. This would provide more accurate information to determine that while two customers generated sufficient contribution margins, one took much longer to pay and placed smaller, more frequent orders requiring more desktop deliveries and data entry. ABC could help identify which customers were truly profitable.

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630 views17 pages

Dakota Office Products

Dakota Office Products is a regional distributor of office supplies that experienced a sales increase but suffered its first loss. Activity-based costing could help the company better understand costs by allocating overhead to activity cost pools and assigning these pools to products using cost drivers. This would provide more accurate information to determine that while two customers generated sufficient contribution margins, one took much longer to pay and placed smaller, more frequent orders requiring more desktop deliveries and data entry. ABC could help identify which customers were truly profitable.

Uploaded by

amitdas2008
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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DAKOTA OFFICE PRODUCTS - A CASE ANALYSIS

By Amit Das Kartik Agarwal Pranjali Rai Rahul Sharma Rashmi Jha

COMPANY OVERVIEW

Dakota Office Products (DOP) was a regional distributor of office supplies to institutions and commercial business. It offered a comprehensive product line ranging from simple writing implements and fasteners to specialty paper for modern highspeed copiers and printers.

DOP has an excellent reputation for customer service and responsiveness.

The company introduced innovations (ideas) such as desktop delivery and electronic data interchange (EDI)

Despite a sales increase from the prior year, the company (DOP) suffered the first loss in its history.

WHALE CURVE ALSO CALLED PROFIT CLIFF CHART

ACTIVITY-BASED COSTING (ABC)


ABC is not a method of costing, but a technique for managing the organization better. It is a one-off exercise which measures the cost and performance of activities, resources and the objects which consume them in order to generate more accurate and meaningful information for decision-making. Steps:

Allocates overhead to multiple activity cost pools, and Assigns the activity cost pools to products or services by means of cost drivers.

HOW ABC CAN HELP DOP


To get the answer we first have to look into the services provided by DOP to its customers and activities in the distribution centers. DOP SERVICES Shipped its product to its customers using commercial truckers Option of delivering the package of supplies directly to individual location at the customer site ( Desk top option/2% premium )

DOP SERVICES (contd..)


Booking of Orders through Electronic Data Interchange (EDI) ACTIVITIES IN THE DISTRIBUTION CENTERS Process cartons in and out of the facility Desk top delivery service Order Handling Data Entry

PRICING OF DOP PRODUCTS


Price = (Purchased Product Cost + 15% of Purchased Product Cost) + Second markup

To cover the cost of warehousing distribution and fright For General and selling expenses plus allowance for profit.

Prices to customers were adjusted based in long-term relationship and competitive situation.

CUSTOMER PROFITABILITY
Melissa and Tim's Observations
For normal shipments commercial freight is used and the cost is volume based. shipping cost is about same regardless of weight and distance.
Existing personals had more than enough work. More people are needed , if the number of desk top delivery increases. Manpower capacity is used to its fullest

Orders through EDI takes less time than manual entry by data entry operator.

DOP made 2,000 desktop deliveries during year 2,000

CUSTOMER PROFITABILITY
Customer A vs. Customer B

Customer A Places a few large order Has started to use EDI ( 50% of orders in year 2000 came electronically) Average accounts receivable balance was $9,000 ( year 2000) Pays bills within 30 days

Customer B Placed more orders but in smaller chunks Orders placed via phone or Paper. 25% of B's orders requested desktop delivery option. Average accounts receivable balance was $30,000 ( year 2000) Took 90 or more days to pay its bills

The existing customer profitability system indicated that both customers generated a contribution margin sufficient to cover normal general and selling expenses and return a profit for the company

THANK YOU

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