The distribution center team reported that 90% of the workers processed cartons in and out of the facility. The remaining 10% of workers were assigned to the desktop delivery service. All of the other warehouse expenses (rent, building and equipment depreciation, utilities, insurance, and property taxes) were associated with the receipt, storage, and handling of cartons. The delivery trucks were used only for desktop delivery orders. These estimates were reviewed by supervisors and felt to be representative of operations not just in the current year, but in the past year (2000) as well. The data entry team, from monitoring computer records, learned that operators worked 10,000 hours during year 2000. Further analysis of the records revealed the following distribution of time for each of the activities performed by data entry operators.

Activity Data Entry Operators Time

Set up a manual customer order 2,000 hours

Enter individual order lines in an order 7,500 hours

Validate an EDI/internet order 500 hours

Total 10,000 hours

Exhibit 1 Dakota Office Products: Income Statement CY2000

Particulars	Amount $	Markups %
Sales	42,500,000	121.4
Cost of Items Purchased	35,000,000	100.0
Gross Margin	7,500,000	21.4
Warehouse Personnel Expense	2,4000,000	6.9
Warehouse Expenses (excluding personnel)	2,000,000	5.7
Freight	450,000	1.3
Delivery Truck Expenses	200,000	0.6
Order Entry Expenses	800,000	2.3
General and Selling Expenses	2,000,000	5.7
Interest Expense	120,000	0.3
Net Income Before Taxes	(470,000)	-1.3

Exhibit 2 Customer Profitability Report (Current Method)

	Customer A		Customer B
Particulars	Amount $	Markups %	Amount $	Markups %
Sales	103,000	121.2	104,00	122.4
Cost of Items Purchased	85,000	100.0	85,000	100.0
Gross Margin	18,000	21.2	19,000	22.4
Warehousing, Distribution and Order Entry	12,750	15.0	12,750	15.0
Contribution to General and Selling Expenses, and Profit	5,250	6.2	6,250	7.4

Exhibit 3 Services Provided in Year 2000 to Customers A and B

Particulars	Customer A	Customer B
# of Cartons Ordered	200	200
# of Cartons Shipped Commercial Freight	200	150
# of Desktop Deliveries	None	25
# of Orders, Manual	6	100
# of Line Items, Manual	60	180
# of EDI Orders	6	None
Average Accounts Receivable	$9,000	$30,000

a. 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.

b. Using your answer to question a., calculate the profitability of Customer A and Customer B.