Dakota Office Products Case Solution

Case Solution

The senior management team of Dakota, an office products distributor, is anxious in regards to the company's first decrease in history. Explores the part for activity based costing and customer profitability measurement in the distribution company. Dakota's customers are progressively demanding more specialized services, for instance desktop delivery. Also, whereas some clients have switched to electronic ordering, others still placed their orders manually. Prices is depend-ant on the set markup from the cost from the bought item. The managers think that the fixed markup may not be having to pay them for your greater costs of manual order processing and desktop delivery. The financial manager initiates an effort to estimate the fee for handling the various types of orders to make sure that she'll estimate the profitability of human clients based on their actual order pattern.

Excel Calculations

Cost Drivers, Activity Cost, Cost Driver Rate

Services Provided to Customer A and Customer B

Customer A, Customer B

Total Number Of Each Cost Driver

Product Cost using ABC Costing

Questions Covered

1. Why was Dakota?s existing pricing system inadequate for its current operating environment?

2. Provide a brief analysis of the attached (page 2 of this document) activity-based costing system. Do you agree with the activities and/or cost drivers identified for each activity? Why or why not?

3. Using the activity-based costing system from Question 2, calculate the profitability of Customer A and Customer B. (Hint: This should be a relatively straightforward calculation given the ABC system in Question 2)

4. 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?

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