Management Accounting

CASE:- DAKOTA OFFICE PRODUCTS

Made by:-
VISHNU
MAHESH
SUNAINA
SHRI HARSHA
ABHINAV
FACTS IN THE CASE
 Melissa Dunhill-Controller
 Tim Cunningham-Director of Operations
 John Malone-General Manager
 Regional Distributor of Office Supplies, (Had excellent reputation)

COMMERCI
AL 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

 ACTIVITIES
 CARTON IN AND OUT OF FACILITY
 DESKTOP DELIVERY SERVICE
 ORDER HANDLING
 ORDER ENTRY

 ORDERS MANUAL EDI

16000 8000
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 COSTING
ACTIVITY 1- PROCESS CARTONS IN AND OUT

FREIGH DESKTO
T P
DELIVER
Y
WAREHOUSE 20000 25$/CART 25$/CART
EXPENSE 0 ON ON
TOTAL NO. OF 80000 WAREHOUSE 0.9 * 0.1*24000
CARTONS PERSONAL 240000/75 0/5000
EXPENSE 000 = =48$
28.8$
WAREHOUSE 25$ TOTAL 53.8$ 73$
EXPENSE/CART
ON
ACTIVITY BASED COSTING
ACTIVITY 2- DELIVERY CHARGES
FREIGHT DESKTOP
DELIVERY

EXPENSE 450000$ 200000$

TOTAL NO. OF CARTONS 75000 5000

EXPENSE/CARTON 6$ 740$

ACTIVITY 3- ORDER HANDLING

2000000$ FOR 80000 CARTONS = 25$ /CARTON
ACTIVITY BASED COSTING
ACTIVITY 4-ORDER ENTRY

MANUAL EDI

ORDER ENTRY 9500 500

TOTAL NO. OF 16000 8000

ORDERS
EXPENSE/ORDER 47.5$ 5$
CUSTOMER PROFITABILITY
CUSTOMER A CUSTOMER B
NO. OF CARTONS 200 200
ACTIVITY 1 53.8*200 150*53.8 +50*73=11720
EXPENSE
ACTIVITY 2 6*200 150*6 +50*40 =2900
EXPENSE

ACTIVITY 3 25*200 25*200 =5000

EXPENSE

COST OF GOODS 85000 85000

2% MARKUP FOR DD NIL (85000/200)*50*.02 =425
ORDER ENTRY 6*10 +60*4 100*10 + 180*4=1720
CHARGES =300
6*5 =30
INTEREST 9000*.1/12=75 30000*0.1*3/12=750$
TOTAL 102290 106765
CONTINUED…
CUSTOME CUSTOMER B
RA
SALES 103000 104000

EXPENSE BEFORE 102290 106765

INTEREST
PROFIT/(LOSS) 10$ (2765)

INTEREST 75 750

TOTAL (65)$ (3515)$

PROFIT/(LOSS)

BOTH A AND B LEADING TO LOSSES

CORRECTION REQUIRED
1) DISCONTINUE DESKTOP DELIVERY

EXPENSE SAVED =200000$

COST INCURRED FOR SENDING 5000 BY FREIGHT = 5000*6=30000

TOTAL EXPENSE FOR 8000 UNITS TO SEND BY FREIGHT =80000*6=480000

2% MARGIN for DD = 35000000*5000*.02/80000= 50313$

SAVING OF WAREHOUSE PERSONAL EXPENSE= 10% OF 240000= 24000$

WAREHOUSE EXPENSE FOR SENDING 5000 BY DD=
2160000*5000/75000=$144000

NET IMPACT = 200000-30000+240000-144000-50313 = 215687$

NET LOSS =(470000) – 215687 = (254313$)
ORDER ENTRY IMPACT
CURRENT EXPENSE =800000$ FOR 10000HRS
EXPENSE/HOUR =80$

MANUAL EDI

ORDER ENTRY(IN 9500 500

HRS)
NO. OF ORDERS 16000 8000

HRS/ ORDER .59375 .0625

EXPENSE/ORDER 47.5 5

TOTAL EXPENSE 760000 40000

CONTD.
SHIFTING 50% MANUAL ORDERS TO EDI

MANUAL EDI

NO. OF ORDERS 8000 16000

EXPENSE/ORDER 47.5 5

TOTAL EXPENSE 380000 80000

NET PROFIT = 340000$- 254313$

= 85687$
CONTD..
SHIFTING 100% MANUAL ORDERS TO EDI

MANUAL EDI

NO. OF ORDERS 0 24000

EXPENSE/ORDER 47.5 5

TOTAL EXPENSE 0 120000

800000-120000=$680000
NET PROFIT = (254313)+680000$
= $425687
ANALYSIS
BREAK EVEN ORDER POINT ANALYSIS
254313/(47.5-5) =5984 ORDERS
NO. OF MANUAL ORDERS =10016
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