Office Dakota Products Case Analysis

component part Dakota Products Case synopsis blood BUSA 5061 Managerial Accounting Students wee-wee Teresa Willette Professors bod Dr. Conner/Dr. Pollard Date 3/20/2011 Executive Summary The pursuance analysis is written for Dakota Office Products to evaluate received rail line operations and recommend early actions necessary to ensure association success. In the analysis of the gild we will advert inefficient business practices that excite take to the companies first profit loss in its history.We will evaluate the guilds current set structure, requesting modes, shipping and lecture process, and deficiencies in cash flows. For Dakota Office Products (DOP), its lively address arrangement was inadequate because it is incap fitted of business relationship for even besides told of the known bell more(prenominal) than(prenominal) as the desk jacket saving service as well as hidden mo lucreary value such(prenominal) as the ten percent DOP paid to keep open its working capital line of denotation for accounts receivable.Using the performance ground embodying(ABC) methodology raft be utilized to as well as improve processes and send opportunities to improve business effectiveness and efficiency by determine the true or real personify of a given point of intersection or service. ABC principles be used to centralize ways attention on the total toll to produce a mathematical harvest-festival or service, and as a foot for luxuriant cost reco real of a employment or service process. Background entropy The telephoner under the study, Dakota Office Products, is an realised and reputed player under this segment.They were regional distributors for theatrical role supplies and the major clientele served by the connection included institutional and commercial clients. It dealt with all kind of big businessman supplies starting from all kinds of writing equipment to papers and other in good posteousness supplies. The c ommunity has been able to carve a good name for itself in the industry. The party had alike arranged for several dissemination centers where the shipments were required to be unloaded and jammed into cartons meant to be delivered to the respective guests.In order to outgrowth the utility for its customers, the smart set had introduced the desk top option for its valued customers. Under this option, the phoner will use its own run to transferly deliver the goods at the customers premises. The party charged a small redundant amount of upto 2% of the go undered impairment for this additional value added service. This finis was acquire keeping in mind that such a decision could boost the margins of the caller-up. The connection had the policy of countenanceing the gross revenue scathe by 15% over and preceding(prenominal) the purchase set. This policy was framed o ensure that the overheads and transportation cost of the materials could be made up from the ensure u p. The political party would then add another mark up to ensure coverage of usual expenses and contribution of the caller-up. The mark up decision was taken at the beginning of the twelvemonth based on the projected cost of the different products of the go with. Key Issues The management is go around with major price and cost publishing for its products. The bon ton has been using the handed-down cost method to compute the cost of the product cand to the clients.The smart set then adds a mark up as per its policy to infer up at the merchandising price of the product. As a result of not following the action Based equaling, the political party has not been able to cost the products realistically. This has get hold of to mispricing of the products and resultant boilers suit loss to the company. The occurrence that an addition in sales has not conduct to an amplification profits, instead, it has resulted in change magnitude losings has exposed the limitations of th e cost report arranging of the company. The company has not been able to append its profits.This has direct the management to accept that the existing cost news report body has approximately serious flaws which asks to be rectified on an immediate tush so as to avoid making bad decision leading to losses to the company. The company should now be contemplating the executing of military action based be system of rules so as to ensure straitlaced recording of information which will lead to optimal decision making for the company as a whole thence contributing to the growth of the company done increased favourableness. The key issue presented in front of the management is the possible step to be taken by the management in order to avoid such losses.Critical Thought The issue turn to by the accountancy system of Dakota office products invites our attention to the premise of drill Based costing methodology. We be certain around the fact that the method of invoice and reporting system at Dakota Office Product is irrelevant and is leading to the company making scathe decision ultimately leading to losses. This was spare from the record where the company was able to increase its sales without a corresponding increase in the profits for that particular(a) year.Activity based costing system is an appeal which seeks to allocate the overhead cost to the products on a scientific and realistic basis. The existing system of allocating cost at Dakota Office products were inadequate in so much so that it was following an un rational basis for allocating the cost, which were known and visible, such as the background signal delivery cost. The existing system was paltry from reversion of some of the expenses. ABC costing system seeks to over issue the problem of oversight and make a more reasonable allocation of the costs.The distinctive feature of this method is the fact that the method can provide useful insights to the management as to the acti vities which are leading to the cost by identifying the cost drivers, grade and the pattern of activity undertaken. This can also help the management design the functional system such that the costs associated with the products are reduced. We must also tone that the handed-down method of costing ad apt(p)ed by Dakota Office Products are typically designed for companies who are traffic with only a single product, or resembling products.However Dakota Office Products have come to a stage that they are dealing in multiple products such as writing instruments to copier to pages, thus it makes the traditional costing method even more impractical to be followed by the company. This company was dealing in numerous products and was also making strides in adapting varied operational methodologies such as the desktop delivery or the sales through e commerce internet sites. The operations of the company are such that it would be apt for the company to establish a cost driver order a nd apply those rates in the products of the company.The cost driver rates could also be used by the company while applying the cost overheads to some other products that the company may be planning in the future. The existing system of the company involves use of many activities and the company has been able to regularize the operations of the company and is clear about the operational goals that need to be fulfilled by the company. The company is dealing in an industry where the products are quite heterogeneous in personality and once the products are purchased there is very diminished scope of application of direct materials or labor.The major cost that is judge to be incurred is the overhead costs which are factual dependent upon the number of activities undertaken to accomplish the task. The cost drivers need to be observed in front the application of the cost drivers to the number of activities attributable to the product as regards the particular activity. Alternate Solu tion A celebrated fact is that the company has posted increased losses in malice of an increase in overall sales of the company. The prey of the exercise is to let the management be aware of the reasons as to why the company has osted losses even after an increase in the sales. Moreover, the management needs to be shown the way by which the company could healing(p) action so that the managements direction is towards the right direction. The alternate solution available to the company could be enlisted as follows Increase in selling price of the products Review the accounting cognitive processs and implement the change required in accounting executions Discontinue the product which reports a loss We will make a brief study of the above alternatives before forming an opinion on any of the alternatives.As the company is operating in a competitive market, so an increase in selling price of the products is expected to have far reaching repercussions in the genius that the company c ould go on to lose clients and contracts which could lead to even lower sales and higher losses. Moreover, the existing accounting social function is unlike to produce the actual cost of the product. The computation of actual cost of the product is important in the backdrop of the company policy to add a mark up on the cost price of the goods.If the accounting system is inappropriate to visualize the cost of the cost, then it would be inappropriate to add a mark up on the goods based on the cost as produced by the existing accounting effect. A review of the accounting procedure is duly called for as the existing accounting procedure is not appropriate. The accounting procedure is not apt for a company having multiple products and multiple processes, and very little expenses on the direct materials and labor. Application and death penalty of the ABC system will be able to contribute to the accounting procedure adapted by the company.A product which is not able to contribute to the overall profits of the company could be considered to be discontinue. However, the decision of the product to be discontinued lies with the management and the accounting system. As mentioned earlier, the accounting system is not fit, so the company should first implement an ABC costing system in order to make proper decision regarding the costing and pricing of various products as well as the costing of servicing various clients. execution Measures and Follow up Dakota was following the traditional method of allocating overheads across the product lines. The overheads were not allocated to the products based on the activity undertaken for the pay of the product. This led to mispricing of the product and also led to difficulty in taking optimum decision for the company as a whole. The company had incurred losses in spite of an increase in sales, because the company was selling a product at a loss (which was not detected by the traditional costing system).We need to identify the activities on which the cost is dependant, in order to calculate the cost driver rate. The following are the activities identified Processing of Cartons (Activity 1) expediency Involving Desktop Delivery (Activity 2) give treatment (Activity 3) Data Processing and Entry (Activity 4) Activity 1 Amount of set downs = Warehouse personnel office cost (90%) + Items Purchased = 90%*2400000+35000000 = 2160000 + 35000000 = 37160000. Activity driver (Processing of Carton) = 80000 bell driver Rate for Activity 1 = 37160000 / 80000 = $ 464. 5 per carton.Activity 2 Amount of Expenses = Warehouse Personnel Expense (10%) + Delivery Truck Expense = 10%*2400000+200000 = 240000 + 200000 = 440000 Activity Driver (Desktop Delivery) = 2000 Cost Driver Rate for Activity 2 = 440000 / 2000 = $ 220 per carton. Activity 3 Amount of Expenses = Warehouse Expense + Freight = 2000000+450000 = 2450000 Activity Driver (Orders) = 16000+8000 = 24000 Cost Driver Rate for Activity 3 = 2450000 / 24000 = $ 102. 083 per order. Activity 4 Amount of Expenses = Order Entry Expenses = 800000 Activity Driver (Orders Line) = 150000 Cost Driver Rate for Activity 4 = 800000 / 150000 = $ 5. 3 per line. The implementation involves computing the profitability of the two clients A Sales Cost Gross Margin No of Cartons ordered 464. 5 92900 9290 0 B 1040 103000 00 8500 85000 0 1900 18000 0 Desktop Deliveries 220 Order treatment 102. 083 1224. 996 Data Entry 5. 33 amount Cost 319. 8 94444. 8 959. 4 1095 67. 7 5567. 7 1020 8. 3 0 5500 Contribution 8555. 204 The following are the chief(prenominal) causes of difference in profitability amid the two customers Customer B has a desktop deliver of 25 whereas customer A has none. The number of data origination for customer B is 180 whereas it is about 60 for customer A.References Michael H. Granof, David E. Plat, Igor Vaysman. (2000). Using Activity-Based be to Manage More Effectively. http//costkiller. net/tribune/Tribu-PDF/Using-Activity-BasedCosting-to- Manage-More-Effectively. pdf Rockford Consulting, retrieved frame in 21, 2011, from http//rockfordconsulting. com/activitybased-costing%20(ABC). htm Value based management, retrievd March 21, 2011, from http//www. valuebasedmanagement. net/methods_abc. html Dakota Products Case Office Analysis Course BUSA 5061 Managerial Accounting Students Name Teresa Willette Professors Name Dr. Conner/Dr. Pollard Date 3/20/2011