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  • MAC Assgn 03

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    Walia Raunaq Rajiv PGP 2022-24 Batch
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    Dakota's existing pricing system was inadequate for its current operating environment because it relied on predetermined overhead rates and a single allocation metric, which failed to account for Dakota's different activities and associated cost drivers. Dakota has many activities with different cost drivers, so each customer should be charged differently based on the activities they use. The existing system did not provide this bifurcation and did not accurately show profitability.

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    MAC Assgn 03 (1) (1)

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    Dakota's existing pricing system was inadequate for its current operating environment because it relied on predetermined overhead rates and a single allocation metric, which failed to account for Dakota's different activities and associated cost drivers. Dakota has many activities with different cost drivers, so each customer should be charged differently based on the activities they use. The existing system did not provide this bifurcation and did not accurately show profitability.

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    12 views1 page

    MAC Assgn 03

    Uploaded by

    Walia Raunaq Rajiv PGP 2022-24 Batch
    Dakota's existing pricing system was inadequate for its current operating environment because it relied on predetermined overhead rates and a single allocation metric, which failed to account for Dakota's different activities and associated cost drivers. Dakota has many activities with different cost drivers, so each customer should be charged differently based on the activities they use. The existing system did not provide this bifurcation and did not accurately show profitability.

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    MAC Assignment 03

    Dakota Office Products


    Submitted By: Raunaq Walia (2022PGP453)
    1. Why was Dakota's existing pricing system inadequate for its current operating environment?
    The traditional costing system is used to determine the cost of making products and based on allocating overhead or
    indirect manufacturing cost.
    The system relies on calculating predetermined overhead rates and applying the rates to a given metric. Dakota's
    existing costing system involves inflating the purchase price to cover the cost of warehouse and order processing etc.
    This system is inadequate as Dakota has many activities, the drivers for each activity is different.Hence each customer
    is to be charged as per differential pricing based on activities availed. The existing costing system fails to give this
    bifurcation hence does not show correct profitability

    2. Calculate Activity Driver Rate for Dakota based on year 2000 data.

    3. Calculating profitability of customers A and B using the ABC method.

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