Dakota Office Products Case Essay

1 Dakota current apportions warehousing, distribution and order entranceway greet equally to individually customer. DOPs pricing system is generally independent of the specific take of service provided for customers. They just chose a single appeal drive. However, its not believable and proper to consumption this simple method to analyze live when comprises are much complex. So we need to use employment- found live system to chose different cost drives and allocate costs based on the activity.2 We identify four different activities for all costs, order intervention cost, ship cartonful cost or normal commercial dispatch cost, desktop hold openy cost, and order processing cost.As we noticed, the distribution common snapping turtle team reported 90% of their workers proceed carton in and divulge of facility. So, the lend cost for order handling is $4,160,000, which is the sum of 90% of store force out cost and warehouse expenses (excluding personnel). This cost entirely depends on the human action of cartons moved in and out of storage. So the total handling cost need to be allocated by the number of cartons processed in social class 2000, which is 80,000 cartons. Then we repel the all overhead set up for handling cost that is $52.00 per carton. We only have the freight cost that is associated with normal shipment. We divide total cost $450,000 by the number of carton shipped only through normal shipment, which is 750,000 cartons. Then, we get the overhead sum up for ship carton, which is $6.00 per carton.We also have desktop gestate option for customer. The total cost for 2000 delivers during 2012 is the sum of 10% of warehouse personnel expense and delivery truck expenses, which is $440,000. The overhead rate for desktop deliver is $220 per deliver. As order processing cost, we use weight bonny method, based on the hour used to divide this cost into three part, manual(a) order limitation, pull in times manual order and EDI che cks. We calculate total cost for manual order limitation $160,000 and it had 16,000 orders. So the overhead rate for manual order limitation is $10 per order. do cost for production declination items is $600,000 and it had total 150,000 businesss. The overhead rate for line item is $4 per line item. Total cost for EDI checks is 400,000 and it had 8,000 checks. The overhead rate for EDI check is $ 50 per order.3 According to the Exhibit 3, we find the number of apiece activity provided to customers A and B during year 2000. We use these number multiplies each overhead rate to get overhead costs for each activity. For customer A, we have primitive gross clear margin $18,000 and other costs including, order handing cost $10,400, ship carton cost $1,200, manual order cost $60, line items $240, and EDI orders cost $300. node A also has stake expense based on his average accounts receivable within 30 days, which is $9,000 and annual interest rate is 10%. Therefore, the interes t expense for customer A is $75. We use gross margin $18,000 subtracts total other cost including interest expense $12,275 to get profit for customer A, which is $5,725. We use the same method to get gross margin for customer B is $19,000 and total other cost including interest expense is $19,020. So customer B loses $20.4 Customer A use normal shipment and most of orders are EDI orders. These two could save more spend and is more profitable for the company. However, customer B have 25 desktop deliveries. This cost is about 6.47% of cost of items purchased. Also, customer B uses handed-down manual order and manual line items order that cost more. Additionally, interest expense for customer B is also very superiorer because of his payments everlastingly after 90 days with a higher payment amount. Total other cost for customer B is 1.55 times of customer A. Therefore, customer A is more profitable and customer B loses $20.5 and 6 The only limitation for customer A is manual order a nd line items. We suggest customer A use EDI orders instead of these two. It could save cost and make more profit. For customer B, the cost for desktop deliveries is very high and customer B use traditional manual order entry without EDI. It costs a lot for customer B. We recommend customer B decrease the desktop deliveries or increase the price for desktop deliveries to top side the cost. We also suggest customer B switch traditional manual order entry and line items to EDI orders. This technology would help save cost and be more profitable for custer A and B.7 Under activity-based costing, we allocate all costs into differentactivity. So, we could easily see the cost for each activity related to our cost of items purchased. We can figure out which activity is more costing and take control this cost to increase our profit.8 If a major customer switches from placing all its orders manually to placing all its orders over the meshing site, we will spend more workers hour on EDI chec ks. We use weight-average method to allocate order entry expenses into three activities, manual order, line items, and EDI checks. So, the expenses for manual order and line items could be decrease and expenses for EDI checks increases. We need to calculate the overhead rate for both three activities. Additionally, the cost for EDI checks is more cheaper than the other two. So, if a major customer places all order over internet site, it would save cost and make more profit for company.