Management AccountingCASE:- DAKOTA OFFICE PRODUCTSMade by:VISHNU MAHESH SUNAINA SHRI HARSHA ABHINAV

FACTS IN THE CASEy Melissa Dunhill-Controller y Tim Cunningham-Director of Operations y John Malone-General Manager y Regional Distributor of Office Supplies, (Had excellent reputation)

COMMERCIAL 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

ACTIVITIESy CARTON IN AND OUT OF FACILITY y DESKTOP DELIVERY SERVICE y ORDER HANDLING y ORDER ENTRY y ORDERS

MANUAL16000

EDI8000

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 COSTINGy ACTIVITY 1- PROCESS CARTONS IN AND OUTFREIGHT WAREHOUSE EXPENSE TOTAL NO. OF CARTONS 200000 80000 WAREHOUSE PERSONAL EXPENSE 25$/CART ON 0.9 * 240000/75 000 = 28.8$ 53.8$ DESKTOP DELIVERY 25$/CART ON 0.1*240000 /5000 =48$ 73$

WAREHOUSE 25$ EXPENSE/CARTON

TOTAL

ACTIVITY BASED COSTINGy ACTIVITY 2- DELIVERY CHARGESFREIGHT DESKTOP DELIVERY 200000$ 5000 740$

EXPENSE TOTAL NO. OF CARTONS EXPENSE/CARTON

450000$ 75000 6$

ACTIVITY 3- ORDER HANDLING 2000000$ FOR 80000 CARTONS = 25$ /CARTON

ACTIVITY BASED COSTINGy ACTIVITY 4-ORDER ENTRYMANUAL ORDER ENTRY TOTAL NO. OF ORDERS EXPENSE/ORDER 9500 16000 47.5$ EDI 500 8000 5$

CUSTOMER PROFITABILITYCUSTOMER A NO. OF CARTONS ACTIVITY 1 EXPENSE ACTIVITY 2 EXPENSE ACTIVITY 3 EXPENSE COST OF GOODS 2% MARKUP FOR DD ORDER ENTRY CHARGES INTEREST TOTAL 200 53.8*200 6*200 25*200 85000 NIL CUSTOMER B 200 150*53.8 +50*73=11720 150*6 +50*40 =2900 25*200 =5000 85000 (85000/200)*50*.02 =425

6*10 +60*4 =300 100*10 + 180*4=1720 6*5 =30 9000*.1/12=75 102290 30000*0.1*3/12=750$ 106765

CONTINUEDCUSTOMER A SALES EXPENSE BEFORE INTEREST PROFIT/(LOSS) INTEREST TOTAL PROFIT/(LOSS) 103000 102290 10$ 75 (65)$ CUSTOMER B 104000 106765 (2765) 750 (3515)$

BOTH A AND B LEADING TO LOSSES

CORRECTION REQUIRED1)

DISCONTINUE DESKTOP DELIVERY

y EXPENSE SAVED =200000$ y COST INCURRED FOR SENDING 5000 BY FREIGHT = 5000*6=30000 y TOTAL EXPENSE FOR 8000 UNITS TO SEND BY FREIGHT =80000*6=480000 y 2% MARGIN for DD = 35000000*5000*.02/80000= 50313$ y SAVING OF WAREHOUSE PERSONAL EXPENSE= 10% OF 240000= 24000$ y WAREHOUSE EXPENSE FOR SENDING 5000 BY DD=

2160000*5000/75000=$144000y NET IMPACT = 200000-30000+240000-144000-50313 = 215687$ y NET LOSS =(470000) 215687 = (254313$)

ORDER ENTRY IMPACTy CURRENT EXPENSE =800000$ FOR 10000HRS y EXPENSE/HOUR =80$MANUAL ORDER ENTRY(IN HRS) NO. OF ORDERS HRS/ ORDER EXPENSE/ORDER TOTAL EXPENSE 9500 16000 .59375 47.5 760000 EDI 500 8000 .0625 5 40000

CONTD.y SHIFTING 50% MANUAL ORDERS TO EDIMANUAL NO. OF ORDERS EXPENSE/ORDER TOTAL EXPENSE 8000 47.5 380000 EDI 16000 5 80000

y NET PROFIT = 340000$- 254313$

= 85687$

CONTD..y SHIFTING 100% MANUAL ORDERS TO EDIMANUAL NO. OF ORDERS EXPENSE/ORDER TOTAL EXPENSE 0 47.5 0 EDI 24000 5 120000

800000-120000=$680000 NET PROFIT = (254313)+680000$ = $425687

ANALYSISBREAK EVEN ORDER POINT ANALYSIS y 254313/(47.5-5) =5984 ORDERS y NO. OF MANUAL ORDERS =10016 y 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