Price $75 1529 Words Solution ID 2474 Case ID 102021

Dakota Office Products

Overview of Case Solution

Excel Calculations

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

Questions Covered

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?

Keywords

Activity-based costing, Cost systems, Distribution, Management accounting, Pricing, Profitability