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.