Management Accounting
CASE:- DAKOTA OFFICE PRODUCTS
Made by:-
VISHNU
MAHESH
SUNAINA
SHRI HARSHA
ABHINAV
FACTS IN THE CASE
Melissa Dunhill-Controller
Tim Cunningham-Director of Operations
John Malone-General Manager
Regional Distributor of Office Supplies, (Had excellent reputation)
COMMERCI
AL FREIGHT
DELIVERY
DESKTOP
DELIVERY
Pricing: -Purchase cost + 15% markup(warehousing + distribution +
freight) + General and Selling Expenses
ADDITIONAL = +2% for Desktop Delivery.
Introduced EDI in 1999 and new website in 2000
ACTIVITIES
CARTON IN AND OUT OF FACILITY
DESKTOP DELIVERY SERVICE
ORDER HANDLING
ORDER ENTRY
ORDERS MANUAL EDI
16000 8000
10 ITEMS/ ORDER – TOTAL 150000 LINES
TOTAL CARTONS – FREIGHT DESKTOP DELIVERY
80000 75000 5000
MANUAL ORDER- ORDER SETUP EXPENSE + LINES/ORDER ENTERED
DATA TIME ENTRY
ACTIVITY TIME TAKEN
ORDER SETUP 2000 HRS
INDIVIDUAL LINES 7500 HRS
VALIDATIONG EDI 500 HRS
ACTIVITY BASED COSTING
ACTIVITY 1- PROCESS CARTONS IN AND OUT
FREIGH DESKTO
T P
DELIVER
Y
WAREHOUSE 20000 25$/CART 25$/CART
EXPENSE 0 ON ON
TOTAL NO. OF 80000 WAREHOUSE 0.9 * 0.1*24000
CARTONS PERSONAL 240000/75 0/5000
EXPENSE 000 = =48$
28.8$
WAREHOUSE 25$ TOTAL 53.8$ 73$
EXPENSE/CART
ON
ACTIVITY BASED COSTING
ACTIVITY 2- DELIVERY CHARGES
FREIGHT DESKTOP
DELIVERY
EXPENSE 450000$ 200000$
TOTAL NO. OF CARTONS 75000 5000
EXPENSE/CARTON 6$ 740$
ACTIVITY 3- ORDER HANDLING
2000000$ FOR 80000 CARTONS = 25$ /CARTON
ACTIVITY BASED COSTING
ACTIVITY 4-ORDER ENTRY
MANUAL EDI
ORDER ENTRY 9500 500
TOTAL NO. OF 16000 8000
ORDERS
EXPENSE/ORDER 47.5$ 5$
CUSTOMER PROFITABILITY
CUSTOMER A CUSTOMER B
NO. OF CARTONS 200 200
ACTIVITY 1 53.8*200 150*53.8 +50*73=11720
EXPENSE
ACTIVITY 2 6*200 150*6 +50*40 =2900
EXPENSE
ACTIVITY 3 25*200 25*200 =5000
EXPENSE
COST OF GOODS 85000 85000
2% MARKUP FOR DD NIL (85000/200)*50*.02 =425
ORDER ENTRY 6*10 +60*4 100*10 + 180*4=1720
CHARGES =300
6*5 =30
INTEREST 9000*.1/12=75 30000*0.1*3/12=750$
TOTAL 102290 106765
CONTINUED…
CUSTOME CUSTOMER B
RA
SALES 103000 104000
EXPENSE BEFORE 102290 106765
INTEREST
PROFIT/(LOSS) 10$ (2765)
INTEREST 75 750
TOTAL (65)$ (3515)$
PROFIT/(LOSS)
BOTH A AND B LEADING TO LOSSES
CORRECTION REQUIRED
1) DISCONTINUE DESKTOP DELIVERY
EXPENSE SAVED =200000$
COST INCURRED FOR SENDING 5000 BY FREIGHT = 5000*6=30000
TOTAL EXPENSE FOR 8000 UNITS TO SEND BY FREIGHT =80000*6=480000
2% MARGIN for DD = 35000000*5000*.02/80000= 50313$
SAVING OF WAREHOUSE PERSONAL EXPENSE= 10% OF 240000= 24000$
WAREHOUSE EXPENSE FOR SENDING 5000 BY DD=
2160000*5000/75000=$144000
NET IMPACT = 200000-30000+240000-144000-50313 = 215687$
NET LOSS =(470000) – 215687 = (254313$)
ORDER ENTRY IMPACT
CURRENT EXPENSE =800000$ FOR 10000HRS
EXPENSE/HOUR =80$
MANUAL EDI
ORDER ENTRY(IN 9500 500
HRS)
NO. OF ORDERS 16000 8000
HRS/ ORDER .59375 .0625
EXPENSE/ORDER 47.5 5
TOTAL EXPENSE 760000 40000
CONTD.
SHIFTING 50% MANUAL ORDERS TO EDI
MANUAL EDI
NO. OF ORDERS 8000 16000
EXPENSE/ORDER 47.5 5
TOTAL EXPENSE 380000 80000
NET PROFIT = 340000$- 254313$
= 85687$
CONTD..
SHIFTING 100% MANUAL ORDERS TO EDI
MANUAL EDI
NO. OF ORDERS 0 24000
EXPENSE/ORDER 47.5 5
TOTAL EXPENSE 0 120000
800000-120000=$680000
NET PROFIT = (254313)+680000$
= $425687
ANALYSIS
BREAK EVEN ORDER POINT ANALYSIS
254313/(47.5-5) =5984 ORDERS
NO. OF MANUAL ORDERS =10016
NO. OF EDI ORDERS =13984
STOPPING DESKTOP DELIVERY WILL REDUCE
LOSS
SHIFTING FROM MANUAL TO EDI
AND THEN EVERY EDI ORDER WILL REAP
PROFITS TO THE ORGANIZATION
