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Dakota Office Supplies

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by

Prerna Pal

on 30 November 2014

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Transcript of Dakota Office Supplies

Dakota Office Products
Need for ABC?
Why ABC?
Regional Distributor of Office Supplies to Institutions and commercial businesses - Items like pencils to Photo-copy paper
Shipping - "Commercial trucks" and "Desk Top delivery option"
Introduction of EDI and internet site
First loss despite a sales increase
3 room-mates: Ram, Shyam and Ghanshyam
Old way of splitting costs- Equal division
New way- ABC based costing
A Case of changing Costing Methods
Group 2

Apeksha Aggarwal
Apurva Dixit
Bhaskar Tetarbe
Prerna Pal
Rahul Gupta
Rahul Roshan
Dakota Office Supplies
ABC in layman's terms
Accuracy
Fair and correct Selling Prices
Benefits
ABC for Dakota
Cost of a product:


Differences in overhead:
Delivery
Ordering
Order size

TRADITIONAL VS ACTIVITY BASED COSTING

Activity-Based Costing (ABC)

An overhead cost allocation system that allocates overhead to multiple activity cost pools and assigns the activity cost pools to products or services by means of cost drivers that represent the activities used.
Activity based costing allocates costs based on the discreet tasks (activities) that drive those costs.


Recommendations
Difference 1:
The cost of delivery to the desktop (Applying the fixed cost of the delivery truck expenses on the Desktop delivery on the customers who have used it will lower the profitability of these customers)
Recommendation:
Using only the shipping by commercial trucks
Make use of Dakota’s truck fleet in another activities as to lower the delivery truck expenses portion applied on these customers
Recommendations
Difference 2:
The processing of manual orders & the cost of entering items manually
Recommendation:
Increase the pricing on Customer B to cover the loss incurred fromthis activity.
Encourage customer B on using the EDI and the Internet forplacing their sales orders by offering them a competitive pricing when using these two tools.
Encourage Customer B on placing bulk orders rather than small orders, this will save the time of processing manual orders.
Recommendations
Difference 3:
The processing of manual orders & the cost of entering items manually
Recommendation:
Increase the pricing on Customer B to cover the loss incurred fromthis activity.
Encourage customer B on using the EDI and the Internet forplacing their sales orders by offering them a competitive pricing when using these two tools.
Encourage Customer B on placing bulk orders rather than small orders, this will save the time of processing manual orders.
Existing Pricing structure
The cost of the product was first marked-up by about 15% to cover the cost of warehousing, distribution and freight.
The price was again marked-up to cover the cost of general and selling expenses and an allowance for profit.

The mark-ups were based on the last years expenses.
There was an additional mark-up on the desktop delivery.

Existing Pricing structure
Actual prices were based on
Tenure of Relationship with the customer.
Competitive situations.

Current situation
Increase in sales.
Increase in costs.
Loss for the first time in the history of DOP.

The Problem Statement
The system of accounting for various costs was inefficient. The
company needed to review its day-to-day operations to identify
possible cost centres for which costs could be measured. The costs
can then be accordingly allocated to the manual orders and desk-top
orders depending on the respective quantum of orders
Full transcript