Dakota Office Products Case
1 Dakota current allocates warehousing, distribution and order entry cost equally to each customer. DOP’s pricing system is generally independent of the specific level of service provided for customers. They just chose a single cost drive. However, it’s not believable and proper to use this simple method to analyze costs when costs are more complex. So we need to use activity-based cost system to chose different cost drives and allocate costs based on the activity.
2 We identify four different activities for all costs, order handling cost, ship carton cost or normal commercial shipment cost, desktop delivery cost, and order processing cost.
As we noticed, the distribution center team reported 90% of their workers proceed carton in and out of facility. So, the total cost for order handling is $4,160,000, which is the sum of 90% of warehouse personnel expense and warehouse expenses (excluding personnel). This cost only depends on the number of cartons moved in and out of storage. So the total handling cost need to be allocated by the number of cartons processed in year 2000, which is 80,000 cartons. Then we get the overhead rate 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 rate for ship carton, which is $6.00 per carton. We also have desktop deliver 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 average method, based on the hour used to divide this cost into three part, manual order limitation, line times manual order and EDI checks. We calculate total cost for manual order limitation $160,000 and it had 16,000 orders. So the overhead rate
2 We identify four different activities for all costs, order handling cost, ship carton cost or normal commercial shipment cost, desktop delivery cost, and order processing cost.
As we noticed, the distribution center team reported 90% of their workers proceed carton in and out of facility. So, the total cost for order handling is $4,160,000, which is the sum of 90% of warehouse personnel expense and warehouse expenses (excluding personnel). This cost only depends on the number of cartons moved in and out of storage. So the total handling cost need to be allocated by the number of cartons processed in year 2000, which is 80,000 cartons. Then we get the overhead rate 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 rate for ship carton, which is $6.00 per carton. We also have desktop deliver 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 average method, based on the hour used to divide this cost into three part, manual order limitation, line times manual order and EDI checks. We calculate total cost for manual order limitation $160,000 and it had 16,000 orders. So the overhead rate