CASE STUDY PRESENTATION :

DAKOTA OFFICE PRODUCT

Present by :
Group 6 (13th November 2021)
ACC7170 Accounting for Decision Making

Supervised by :
Assoc, Prof, Dr. Ahmed Razman Abdul Latiff
MEET THE TEAM MEMBERS

ISLAH DHIWAKCHAR POH SOON SUZIYANTI

 AGEND 3

A
DAKOTA OFFICE PRODUCTS CASE STUDY

1
Background Of
01 Case Study

404
Solutions &
Recommendations

2
02 Objectives

505 Conclusion

3
Case Study
03 Analysis
 BACKGROUN 4

D
DAKOTA OFFICE PRODUCTS CASE STUDY

Dakota Office Product the supplier of office products, such as

pen, pencil, marker, papers and high speed printer

Delivery Option : Commercial Freight &

Desk delivery

Electronic Data Interchange (1999)

 BACKGROUN 5

D
DAKOTA OFFICE PRODUCTS CASE STUDY

Year 2000 : First poor financial performance ($470,000)

General Manager : John Malone

Melissa Dunhill (Controller) & Tim Cunningham (DIrector of

Operation )
 OBJECTIVE 6

S
DAKOTA OFFICE PRODUCTS CASE STUDY

1 4
To understand the current To proposed the possible
3
situation and the cause of solution and
lost. 2 To apply Activity Based recommendation
Costing (ABC)
To recognize the
.
relationship between cost
management and customer
profitability
 ANALYSI
DAKOTA OFFICE PRODUCTS CASE STUDY
S

DOP 4 Primary Activities Customer Analysis

 
DOP Team Findings Traditional Costing VS
Activity Based Costing

Data Entry Team Customer Profitability

(Operating hours) Analysis
Dakota Office Offerings

Dakota Office – Two main offerings

1) Distribution of office supplies - (commercial freight)

2) Desktop Delivery Services - (direct delivery of services to individual location

at customer site)

● DOP introduced the Electronic Data Interchange (EDI) -1999

● DOP introduced new internet site on 2000
DOP – 4 Primary Activity

Melissa Dunhill (Controller) & Tim Cunningham (Director of operations)

have identified 4 primary activities in DOP

1) Process cartons in and out of the facility

2) Desktop delivery services

3) Order Handling

4) Data Entry
 DOP Team Findings

● 80,000 cartons processed in year 2000 ● 90% of workers processed cartons

(75,000 Cartons shipped via commercial
freight & 5000 cartons under desktop ● 10% of workers were assigned to desktop delivery
deliver option) services

● Data Entry team recorded 10,000 hours for the year

● Data entry operators processed 16,000
2000
manual orders ( 150,000 order line in total)

● Validated 8000 EDI orders

 Data entry team – operating hours

Data entry Operating hour Breakdown

Set up a manual customer order 2,000 20.00%
Enter individual order line 7,500 75.00%
Validate EDI 500 5.00%
Total 10,000 100.00%
 Customer Analysis

Situation Customer A Customer B

Revenue per year $ 103,000 $ 104,000
Order per year 200 cartons 200 cartons
Order pattern Few large orders Many smaller orders
Technology adoption (EDI) Yes No
Delivery Commercial Desktop delivery
Payment Within 30 days 90 days or more
AC receivable $9,000 $30,000

DOP Pays 10% interest annually on working capital line of credit


Traditional Costing VS Activity Based Costing (ABC)
Traditional Costing
Dakota office uses the traditional costing method
Cost effective method which is implemented by
most manufacturer
The cost is not allocated to the activity or process
that actually consumes the overhead activates
Traditional costing usually used for external report
due to its simplicity
13
ABC Costing
Activity Based Costing identifies all the specific
overhead related to the manufacture of each product
– it is not reasonable to apply same overhead cost to
all products
Managers require accurate costing methods to
determine which area are actually profitable and
which were not
3 steps to Customer Profitability Analysis

1. Identify cost driver (activity) and predetermined

rate per unit of activity (ABC Method)

2. Identify the total overhead cost

3. Conduct customer profitability analysis

Activity (Cost Driver) and Predetermined Rate Per Unit of Activity
Overhead Applied for Customer A & B
Customer Profitability Analysis – Customer A
Customer Profitability Analysis – Customer B
Profitability Analysis for Customer A & B
 SOLUTIONS &
DAKOTA OFFICE PRODUCTS CASE STUDY
RECOMMENDATIONS

Adopting Terminating or New Third Party

Approach Customer Education
Activity Based Costing Logistic Partner
for Desktop Delivery

Sales Contract Reducing Data

Pricing Strategy
Implementation Entry Cost
 1. Adopting Activity Based Costing

● Eliminates the irrelevant cost allocation

● Desktop deliveries is costing more
● Charging 2% premium is not sufficient to cover the cost
 2. Terminating or New Approach for Desktop Delivery

● Utilize commercial freight for cost effective

● Terminate desktop delivery service
● Increase the premium charges for desktop deliveries
● Special allocation for key customers
 3. Third Party Logistic Partner

● Engage with third party logistic companies for lower operating cost
● Free up warehouse personal time
● Reduce headcount

4. Customer Education

● Encourage customer to place orders through EDI

● Incentivised them for the technology adoption
● Bulk purchase offer
 5. Sales Contract Implementation

● Having sales contract with customers will help reduce account receivables
● Implementing 30 day payment for all invoices

6. Reducing Data Entry Cost

● Orders through EDI will improve the company's’ profit
 7. Pricing Strategy

● Introduce adjustment on pricing strategy to prospect of customers, competitive price for

loyal customers while high price to new customers.
● Introduce volume pricing, the higher quantity per order enjoy attractive price.
 CONCLUSIO 26

DAKOTA OFFICE PRODUCTS CASE STUDY

N
Innovation introduced by DOP have led to changes and entails
additional cost to the business. Additional cost are an important
indicator to a company to modify its pricing strategy.

The main factor of the net lost for financial year 2000 for DOP :
Improper costing method by DOP

Recommending and implementing Activity Based Costing

(ABC) will solve the problem of change introduced by DOP.

ABC system will result in more accurate costing and products

pricing.
THANK
YOU