Dakota Office Products Case

1236 WordsNov 17, 20115 Pages
Dakota Office Products (A) Dakota Office Products Company priced its products to the customers by marking up the purchased product cost by about 15% to cover the cost of warehousing, distribution, and freight, and adding another markup to cover the approximate cost for general and selling expenses, and profit. This pricing system was inadequate for its current operating environment since each customer required different product ordering and distributing ways which cost differently. Moreover, according to the case scenario, we know that those costs that were considered in product pricing strategy were not accurately assigned to each order and needed to be finely reallocated. So, in order to set up a better pricing system for the company…show more content…
Besides, Customer B placed many more orders with a smaller average size, and this definitely cost more in manual data entry expense. Furthermore, since Customer B took a longer time to pay its bills, it had an average accounts receivable almost three times greater than that of Customer A, so does the cost of its interest expense. Therefore, these differences in costs caused a difference in profitability between these two customers. However, there are still some limitations existing in our analysis. Though the company added another markup to cover the approximate cost for general and selling expenses and profit, the amount of that expenses were still significant enough to be looked at and needed to be further dissected and analyzed to get a better view in allocated cost of each order. There must be some direct cost in general and selling expenses needed to be allocated in different orders. To generate a more precise and valuable profitability report, more detailed information is needed in analysis. (D) If a major customer switched from placing all its orders manually to placing all its orders over the internet site, the activity rate of setting up manual customer order and entering individual order lines would go down whereas the rate of validating internet order would increase. This

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