Dakota case
Question 1
existing price system
1. product cost
2. markup 1 15% product cost warehousing, distribution and freight
3. markup 2* x general and selling expenses + profit
*determined at the start of each year, based on actual expenses in prior year and general industry and competitive trends
For the desktop service, there is an additional markup of 2%.
The existing price system is too vague and inaccurate, for example:
• The price system makes no difference between the manual orders and the EDI/internet-orders, although processing the EDI/internet-orders requires less time so less money.
• The system makes no difference between one big order and several small orders. Several small orders require more data entry operators time. This can be solved by adding extra costs per order, for example administration costs.
Actually, there is no traditional or ABC costing system visible. Now, the question is which system would be the best to implement here.
Because of the comprehensive product line, an ABC-system would be the most accurate. A traditional cost system would lead to cost distortion.
Question 2
Figure 1 diagram ABC cost system
• The cost of data entry:
We calculated the percentages by using the data entry operators time:
EDI: 500/10.000 = 5 % ? cost = 5 % of 800.000
•&nbs ...