# Dakota Office Products Case

734 Words3 Pages
1. The reason for the company to make losses is that it is incurring costs on certain customers in excess of than what it assesses by its method of cost estimation based on general percentages. In order to find the solution, it is required to estimate the costs using ABC estimation method. Same is undertaken below. 2. The first step is to estimate the unit cost of services extended by the company on its value adding processes. Sl. No Activity No. of Table 1 operations Cost Incurred (USD) Ref of cost given in column: 4 Unit Cost (USD) 1 2 3 4 5 6 A Handling of cartons B Shipping of cartons C Desktop delivery 2000 dly 440000 Para 3(c) 220/ dly D Set up of manual E Enter individual F Validate EDI orders 8000 orders 40000 Para 3(d) G General & Selling in Warehouse by freight 80000 cartons 75000 cartons 16000 orders 150000 lines 600000 Para 3(d) 4160000 Para 3(a) 52/ 450000 Para 3(b) 6/ carton Carton 160000 Para 3(d) order lines of each order (i) (ii) (iii) 10/order 4/line 5 / order Expense USD 42500000 of Annual Sales 200000 Para 3(e) 0.47% of sales 3. Explanation of working out the cost shown in column 5 of table above is given below. (a) Handling of cartons in warehouse:-This has two components. Cost of personnel used in warehouse operations and cost of warehouse excluding personnel expense. (i) Cost of Warehouse excluding personnel is USD 2000000 (ii) Only 90% of warehouse personnel are used for handling of cartons in warehouse. So personnel expense towards the same is 0.9 X USD 2400000 = USD 2160000. Total expense is USD (iii) 2000000+USD2160000=USD4160000. (b) Cost of freight for shipping cartons is given as USD 450000 in (c)