Management Accounting: Dakota Office Products Profitability Report

This report provides a comprehensive analysis of Dakota Office Products' profitability, focusing on customer analysis and pricing strategies. It begins with an introduction to management accounting and its significance in business success. The report addresses key questions, including the competitive environment, existing pricing systems, and profitability calculations for Customer A and Customer B. It delves into the differences in profitability between the two customers, explores the limitations of the profitability estimates, and suggests additional information for a more comprehensive analysis. Furthermore, the report discusses how the analysis can help Dakota managers increase company profits by analyzing profit margins, increasing prices, and reviewing all prices. The report concludes by emphasizing the importance of management accounting in achieving business goals and objectives, referencing various books and journals to support its findings.

Management
accounting

Table of Contents
Introduction.................................................................................................................................................3
Q.1 What is the competitive environment faced by Dakota Office Products and its distribution
department?.............................................................................................................................................3
Q.2 What is the existing pricing system at Dakota Office Products?.......................................................3
Q.3 Using your answer to Question 2 calculate the profitability of Customer A and Customer B...........4
Calculation of Profitability of Customer A and Customer B is given below:..........................................4
Q.4 What explains any difference in profitability of Customer A and Customer B?...............................5
Q.5 What are the limitations is any to the estimates of the profitability of the two customers?...............5
Q.6 Is there any additional information you would like to explain the relative profitability of the two
customers?...............................................................................................................................................6
Q.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?..................................................6
Conclusion...................................................................................................................................................6
REFERENCES............................................................................................................................................8

Introduction
Management accounting having a great role in the success of each and every business
unit. There are various tools and techniques which can be used by the business unit in order to
improve business performance in an effective manner. The main objectives of the company are
to control over the cost and increase the profitability of the business (Baldvinsdottir, Mitchell,
and Nørreklit, 2010 ). For this the management tools helps to control all cost and provide a future
direction to the business. The present report is based on the Dakota Office Products. This firm is
providing a wide range of office products to its customers. the main objective of this report is to
identify major issues and provide an effective solution for the company.
Q.1 What is the competitive environment faced by Dakota Office Products and its distribution
department?
The cited business unit is operate their business in the United Kingdom. They provide a
wide range of office products like stationary and other office equipment. Their distribution
system is to effective which can help to increase their profitability. But there are large number of
competiotrs are avail in the market (Bennett, Schaltegger, and Zvezdov, 2013). It can leads to
increase competition level and decrease the revenue of the company. Due to technological
advancement in the market and various informational technology and integrated system it can
overcome their market share and revenue. In order to meet such compeititon the cited business
unit is required to increase competiton level and provide the competitive advantage in the
market.
Q.2 What is the existing pricing system at Dakota Office Products?
It is essential for a business unit is to evaluate their all financial aspects so that they can
determine their profit and make an effective control over the cost of operation. There are various
aspects as given below of the Dakota Office Products as given below:
Existing Pricing system:
The DOP is having various distribution centers in their they are using personal unloaded system.
There are various types of cost involved in their operations (Busco, and Scapens, 2011). The
cited business unit is required that to using various cost control system in their operation process.
These cost can be:

Transportation cost: Transportation cost is the cost incurred to move assets and products to a
different place which are used by the consumer. A business incur transportation cost in order to
bring it's products to retailer to be offered to consumer . This cost is included in the cost of
product.
Acquisition cost: Acquisition cost is the cost incurred to buy goods services or asset. This is
recorded in the books for discounts, incentives, closing cost and other necessary expenditure
before sales tax.
Labor cost: Cost of labour is the sum of all the wages to be paid to employee,including employee
benefit and payroll tax paid by employer. It has further two types Direct and Indirect cost. Direct
cost include wages for employee and worker. Indirect cost include wages paid to support labour.
Inventory cost: It refers to the cost of holding goods in the stock. It is normally expressed as the
percentage of inventory value,it includes capital,warehousing,depreciation and taxation. It is not
only the price that was paid to purchase an item but also the cost of storing and maintaining that
item for however long it takes to sell.
Equipment cost: : It refers to the the cost which is involved in making the machine ready in
order to produce a different product in characteristics from the one it is currently producing. It is
directly proportional to the setup time of machine and so it increases as the time of setup
increases.
Selling and distribution expenses: : It refers to the cost which is incurred by the sales department
of any organisation. These normally include the salaries and wages of the salespersons,sales
administrative staffs,utilities and telephone usage in the sales department,rent of the office sales
office etc.
Administration cost: It refers to the expenses that an organisation incurs not directly tied to a
specific function such as manufacturing,production or sale. These expenses are related to the
whole organisation and not only to an individual department.
Q.3 Using your answer to Question 2 calculate the profitability of Customer A and Customer B.
Calculation of Profitability of Customer A and Customer B is given below:

Customer A Customer B
Particulars Existing Price Current Price Existing Price Current Price
Sales 103000 124836 104000 127296
Dakota Office
Products
85000 85000 85000 85000
Gross margin 18000 21816 19000 23256
Warehousing
and Distribution
12750 14662.5 12750 14662.5
Selling expenses 5250 5575.5 6250 6712.5
Total cost
Profit 45411.5 49008.5
As per the above given calculation the profit of Customer A is 45411.5 and on the other hand
profit of customer B is 19008.5 which is as compare to another one.
Q.4 What explains any difference in profitability of Customer A and Customer B?
As per the above calculated profitability there are quite difference between profit of customer A
and customer B. According to the given information the profit of Customer A is 45411.5 on the
other hand profit of customer B is 49008.5. This difference is due to the major cost which are
included in the product of both customers A and B.
Q.5 What are the limitations is any to the estimates of the profitability of the two customers?
There are various limitations in order to calculate the profitability of the company. These
limitations are that the given profit margin calculation are fails to provide a good analysis which
cannot be useful in the decision making of the company. The above calculation also cannot
provide the future provision for increase and decrease cost of the products.

Q.6 Is there any additional information you would like to explain the relative profitability of the
two customers?
Accodding to my point of view there are few additional information given which can be
considered at the time of calculation of profit margin. This information are related with the
quantity of the goods sole of the company.
Q.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?
It is essential for every business entity is that to analyses and evaluate their financial information
and data so that they can increase their profit in the near future (Christ, and Burritt, 2013). The
cited business firm required that make their decision in on the basis of their financial
information.
Figure out gross profit margin: it is important for the company is that to determine the profit
margin form the given information. It can help to make their various decision making. For this
there are various tools and techniques are given which can be used by them. These tools can be
abostbtion costing and management costing which can be analysed the potential profit margin of
the company.
Analyses profit margin: This is stage where the manager of the cited business organization are
required to evaluate the profit margin of the company. This is one of the most important part
which can make help to analyses the future margin (Cinquini, and Tenucci, 2010).
Increase price: This is another way which can be used by the business unit in order to increase
their profitability in an appropriate manner. The manager of DOP can increase their profit or
other charges which can help to increase their profit margin in an effective manner.
Review all price: This is another approach which can be sued by them. In this method the cited
business organization can review their all process and if is there is any scope their can increase
the prices of accordingly.

Conclusion
As per the above mentioned report it has been concluded that management accounting
having a great significant in the growth and development of a business organization. The report
discussed about the profitability of the company and how the cited business unit can increase the
profit in order to attain their long term goals and objectives. Apart from that the report also
explained about the addition information which can be related to the profitability of two
customers.

REFERENCES
Books and Journals
Baldvinsdottir, G., Mitchell, F. and Nørreklit, H., 2010. Issues in the relationship between theory
and practice in management accounting. Management Accounting Research. 21(2).
pp.79-82.
Bennett, M.D., Schaltegger, S. and Zvezdov, D., 2013. Exploring corporate practices in
management accounting for sustainability. (pp. 1-56). London: ICAEW.
Busco, C. and Scapens, R.W., 2011. Management accounting systems and organisational culture:
Interpreting their linkages and processes of change. Qualitative Research in Accounting
& Management. 8(4). pp.320-357.
Christ, K.L. and Burritt, R.L., 2013. Environmental management accounting: the significance of
contingent variables for adoption. Journal of Cleaner Production. 41. pp.163-173.
Cinquini, L. and Tenucci, A., 2010. Strategic management accounting and business strategy: a
loose coupling?. Journal of Accounting & organizational change. 6(2). pp.228-259.
Contrafatto, M. and Burns, J., 2013. Social and environmental accounting, organisational change
and management accounting: A processual view. Management Accounting Research.