Dakota Office Products, Case Study Example

It was found that the pricing system was inefficient because it adds markup twice, increasing the product price too significantly to be realistic to maintain business.

Activity One: Process Cartons in And Out of the Facility

• Rate = (90 % of warehouse personnel expense + delivery truck expenses) / cartons processed
• Rate = (90 % * 2,400,000 + 35,000,000) / 80,000 = $465.50 per carton
• 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 carton

Activity Three: Order Handling

• Rate = (warehouse expenses + freight) / number of orders
• Rate = (2,000,000 + 450,000) / (16,000 + 8,000) = $102.08 per order
• Activity Four: Data Entry
• Rate = Order Entry Expenses / Order Lines
• Rate = 800,000 / 150,000 = $5.30 orders per line

Profitability = number of cartons ordered * (general and selling expenses + interest expenses) / cartons purchased

• Customer A Sales = 103,000
• Customer B Sales = 104,000
• Cost of Items Purchased A = 94,442.96
• Cost of Items Purchased B = 109,562
• Contribution to selling and general expenses = 200 * (2,120,000 / 80,000) = 5300

The type of delivery was the primary difference because the second customer chose the more expensive delivery for 50 cartons while the number of orders made by the clients were different as well. Overall, the first customer had 12 customers place orders for 200 cartons, while the second had 100 place for 200 cartons. This resulted in a higher cost per order for the less cartons ordered even though the overall expense was higher.