analyze the case Dakota Office Products by identifying the activities, cost drivers and then analyzing customers A and B profitability.
Assess Dakota’s current use of a single overhead application rate.
Review Dakota’s allocation of overheads costs under ABC, Activity Based Costing.
Under ABC sub-activities and respective cost drivers identified in the case consist of: Processing boxes, driven by the number of boxes, Desktop delivery, driven by deliveries, Manual ordering, driven by manual orders, Manuel processing of line items, driven by volume of items, Commercial freight, driven by the number of cartons shipped, and EDI activity, driven by the number of orders.
Use the revised activity / cost drivers to allocate among customer A and customer B Dakota’s overheads (Warehouse personnel expense, Warehouse non-personnel expenses, Freight, Delivery truck expense and Order entry expense), according to customers individual number of cartons ordered, number of cartons shipped by commercial freight, number of desktop deliveries, number of manual orders, number of manual line items and number of EDI orders.
In addition to above overheads, deduct from customers sales respective costs of items purchased and average cost of accounts receivable (10% of outstanding balance) to identify each customer’s profitability.
Sample Solution
