CASE STUDY : DAKOTA OFFICE

PRODUCTS

Group-9

Aditya raj Chauhan (08)

Amit Patel (24)
Abhishek Sahay (26)
Sonal Chandra (41)
Kriti sharan (54)
Sumit Puri (56)
FACTS OF THE CASE:
Characters in the case:
Name Designation
John Malone General Manager
Melissa Dunhill Controller
Tim Cunningham Director of Operation

 Distributor of Office Supplies (pens, pencils, markers,

paper for modern high speed copiers), had an excellent
reputation for customer service.
 Sales were higher in comparison to the previous year, yet
Dakota recorded its first ever loss in its history (2000).
 Two types of delivery options:
a) Freight
b)Desktop Delivery Option ( additional 2% mark up on Cost
Price)

 Pricing = Purchase Cost + (15% Mark Up*) + General & Selling

Expenses + Allowance for profit
*includes warehousing, distribution & freight

 Introduced EDI in 1999 and a new internet site in 2000.

 ACTIVITIES:
 Process cartons in & out of facility:
a) Amount of warehouse space
b) People to move cartons

 Desktop Delivery Service

 Order Entry
a) Orders: Manual (16000) EDI(8000)
b) Average 10 lines/order, total of 150000 lines
c) Total cartons: 80,000 { Freight (75,000) Desktop Delivery(5,000)}
d) Manual Order: Order Setup Expense + Lines/Order Entered
e) EDI Order: Validation time irrespective of number of lines in order.

 Data Entry time in hours

a) Order Setup 2,000 hours
b) Individual Lines 7,500 hours
c) Validating EDI 500 hours
TOTAL 10,000 hours
 CALCULATIONS:
No. of cartons for fridge = 80000
No. of cartoons for desktop = 5000

Warehouse Expense (excluding personal) = $2000000

No. of Cartoons = 80000
Warehouse expense/cartoon (in $)= (2000000/80000)
= 25

Warehouse Personal Expense = $2400000

For Freight = 90% of ($2400000) = 2160000
Warehouse personal expense / carton (for freight in $)
= 2160000/80000
=27
For Desktop Delivery= 10% of ($2400000) = $240000
Warehouse personal expense / carton (for desktop delivery in $)
= 240000/5000 =48
Freight
Expense = $450000
Freight expense/ cartons(in$) = 450000/75000 = 6

Desktop Delivery
Expense = $200000
Desktop Delivery expense/ cartons(in $) = 200000/2000 = 100
Order Entry Expense
Expense = $800000
Expense/ cartons(in $) = 800000/10000 = 80

Manual customer Order = 2000/16000

= 0.125
Manual line order = 7500/150000
= 0.05
EDI order = 500/8000
= 0.0625
Activity Customer A Customer B
Warehouse Personnel Expense 27*200 = 5,400 200*27 + 48*50 = 7,800

Freight 6*200 = 1,200 6*150 + 100*25 = 3400

Order Entry Expense

EDI 6*0.0625*80 = 30 -

Normal Entry 60*0.05*80 = 240 180*0.05*80 = 720

Normal Order 6*0.125*80 = 60 100*0.125*80 = 1000

Total Variable Cost 6930 12920

Warehouse FC 2000000*200/80000 = 5000 2000000*200/80000 = 5000
Selling 2000000*200/80000 = 5000 2000000*200/80000 = 5000
Total Cost (FC+VC) 16930 22920
Interest 0.1*9000*1/12 = 75 0.1*30000*3/12 = 750
Cost Of Goods 85000 85000
Total Cost 102005 108670
Selling Price 103000 104000
Profit(Loss) 995 (4670)
RECOMMENDATION
 Discontinue desktop delivery to decreases the loss that is
being incurred in year 2000.