Hbr Dakota Office Products

Dakota Office Products

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

The pricing system that Dakota has in place isn’t working because they are in a state of transition and they are also not charging companies properly. They are currently moving from manual data entry to a new EDI system while also creating a new desktop delivery service. These cost determinations are not being processed accurately. The losses come when clients place small orders and when orders are placed manually as well. They only receive profit when customers place large orders.  Aside from the size of the orders, Dakota has problems with pricing when it comes to line numbers, manually entered orders and desktop deliveries.

2. 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.

Explanation of Costs found above.

1) The total cost of handling packages comes from two separate line items in DOP’s Income Statement. The first is comprised of labor, which only 90% comes from handling packages. The other component of package handling is the warehouse house expense. We divided by 80,000 cartons because the case states that the distribution centers process that many (page 9).

Handling Packages=90%Warehouse Personnel Expense+Warehouse Expenses

Handling Packages= 0.92,400,000+2,000,000

Handling Packages=2,160,000+2,000,000

Handling Packages=4,160,000

2) The total cost of shipping freight simply comes from the freight expense on the income statement. We used 75,000 cartons as the total activity because the case states this is the amount that is shipped via commercial freight (page 9).

3) Desktop shipping costs are computed by adding the remaining warehouse personnel costs to the delivery truck expenses. This is done because 10% of the personnel costs are spent on desktop deliveries and the only use of the...