Questions: Dakota Office Products
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Why was Dakota's existing pricing system inadequate for its current operating
environment?
Provide a brief analysis of the attached (page 2 of this document) activity-based
costing system. Do you agree with the activities and/or cost drivers identified for
each activity? Why or why not?
Using the activity-based costing system from Question 2, calculate the
profitability of Customer A and Customer B. (Hint: This should be a relatively
straightforward calculation given the ABC system in Question 2)
What explains any difference in profitability between the wo customers? What
are the limitations, if any. to the estimates of the profitability of the two
customers?
Assume that Dakota applies the analysis dane in Question 3 to its entire customer
base. How could such information help the Dakota managers increase company
profits?