Dakota Office Products
This case is not based on a manufacturing business but rather a products distributor. The materials covered in classes up to and including Lecture 6 may be relevant to the case analysis.
Some questions to consider:
- Why was Dakota’s existing pricing system inadequate for its current operating environment?
- Develop an activity-based cost system for Dakota Office Products (DOP) based on Year 2000 data. Calculate the activity cost driver rate for each DOP activity in 2000.
- Using your answer to Question 2 above, calculate the profitability of Customer A and Customer B. Are they different? Why?
- What are the limitations, if any, to the estimates of the profitability of the two customers? Is there any additional information you would like to have to explain the relative profitability of the two customers?
- If DOP applies this analysis to the entire customer base, how could this help management increase profits?
- If a major customer switched from placing all of its orders manually to EDI ordering – how would this affect the activity cost driver rates calculated in 2 above? How would the switch affect DOP’s profitability?
Section 1: Background.
This paragraph should be brief and salient. You MUST NOT reproduce the text of the case. You need to describe the relevant characteristics of the business (its strategy, products/services, processes, existing systems, any important stakeholders (if relevant), etc.); relevant characteristics of the industry in which the business participates (intensity of competition; how the industry is changing etc); relevant general business conditions (market/economy growing or in recession etc), and any other relevant information that should be considered as background for the case.
Section 2: Problems and Issues.
In this paragraph, you MUST identify and briefly discuss (i) the problem(s) facing the company and (ii) the issues that may have led to the problem(s) the company is facing and how you can see this manifesting in the details of the case (i.e., why did you come to this conclusion?).
Remember, from the Huff and Weber, How to Prepare a Case guide (under L1 materials), a problem is something fairly specific and reasonably well understood – even if its solution is not (e.g., profits keep falling even though we believe we are doing a good job). An issue is a more general thing –it also requires attention but needs to be better understood before specific solutions are considered (e.g., our costing system is reporting inaccurate costs, why?).