Question: 1. Why was Dakotas existing pricing system inadequate for its current operating environment? 2. Develop an activity-based cost system and calculate activity cost driver rates.

1. Why was Dakota’s existing pricing system inadequate for its current operating environment?

2. Develop an activity-based cost system and calculate activity cost driver rates.

3. Calculate the profitability of Customer A and Customer B.

4. What explains the difference in profitability between the two customers?

5. What are the limitations, if any, to the estimates of the profitability of the two customers?

6. Is there any additional information you would like to have to explain the relative profitability of the two customers?

7. Assume that Dakota applies the analysis done in Question 3 to its entire customer base. How could such information help the Dakota managers increase company profits?

8. Suppose that a major customer switched from placing all its orders manually to placing all its orders over the internet site. How should this affect the activity cost driver rates calculated in Question 2? How would the switch affect Dakota’s profitability?

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