1.

Why was Dakotas existing pricing

system inadequate for its current operating
environment?
-
profits only when clients placed large orders for cart
ons -
real drop of profit if manyclients place small orders -
wrong cost determination for individual customers -
wrong cost
determination for new services provided by DOP
(to small charges for the desktop delivery, then the
actual cost of it) 2. Develop an activity-base cost system
for Dakota Office Products based on Year 200data.
Calculate the activity cost-driver rate for each DOP
activity in 2000. Activity cost-driver rates:Activity One:
process cartons in and out of the facility Rate=(90%
of Warehouse Personnel Expense +Cost o Items
Purchased)/cartons processed
Rate=(90%*2,400,000+35,000,000)/80,000=464.5
$/percarton Activity Two: the new desktop delivery
service Rate=(10% of Warehouse Personnel Expense
+Delivery Truck Expenses)/desktop deliveries
Rate=(10%*2,400,000+200,000)/2000=220 $/per
cartonActivity Three: order handling Rate=( Warehouse
Expenses + Freight)/ number
of ordersRate=(2,000,000+450,000)/(16,000+8,000)=102
.08 $/per order Activity Four: data entry Rate=Orderentry
expenses/Order lines Rate=800,000/150,000=5.3
orders/per line 3. Using your answer to question2,
calculate the profitability of Customer A and Customer
B. Activity One: process cartons in and out of the facility

> Number of cartons ordered Activity Two: the new
desktop delivery service

> Number of desktop deliveries Activity Three: order
handling

> Number of orders (manual + EDI) Activity Four:
dataentry

> Number of line items Manufacturing Overhead cost-
driver rates Customer ACustomer B Customer A* Custo
mer B* Activity One 464.5
200 200 9290092900 Activity Two 220 0 25 0 5500 Activi
ty Three 102.08 12100 1224.96 102,08 Activity Four
5.3 60 180 318 95494,442.96 109,562sing your answer
to question 2, calculate the profitability of Customer A and
Customer B. Activity One:process cartons in and out of
the facility –> Number of cartons ordered
Activity Two: the newdesktop delivery service
–> Number of desktop deliveries Activity Three:
order handling–> Number of orders (manual +
EDI) Activity Four: data entry –> Number of line
itemsManufacturing Overhead cost-
driver rates Customer A Customer B Customer A*Custo
mer B* Activity One 464.5
200 200 92900 92900 Activity Two 2200 25 0 5500 Activi
ty Three 102.08 12 100
1224.96 102,08Activity Four 5.3 60 180 318 954 94,442.
96 109,562 Profitability: Contribution togeneral and selling
expenses = number of cartons ordered * (general and
selling expenses +
Interestexpenses)/cartons processed Customer A Custo
mer B Sales 103,000 104,000 Cost of Items Purchased 9
4,442.96 109,562 Contribution to general and selling exp
enses, and profit200*2,120,000/80,000= =5300 5300 Pro
fit 3257.04 -
(10,862) 4. What explains anddifference in profitability be
tween the two customers? -
method of delivery (customer Bchooses much more
expensive delivery for 50 cartons) - Number of
orders made by different number
of clients a) Customer A had 12 customers placing an or
der for 200 cartons b) Customer Bhad 100 customers
placing an order for 200 cartons More different customers
placing orders meansmuch higher costs (cost per order is
$102.08). So Customer A spend $1224.96 and Customer
B spend$102,08 which is $8983.04 more money spent
on Customer B. 5. What are the limitations, if any, to