BookWeb, Inc., sells books and software over the Internet. A recent article in a trade journal has caught the attention of management because the company has experienced soaring inventory handling costs. The article notes that similar firms have purchasing, warehousing, and distribution costs that average 13 percent of sales. Thirteen percent is attractive to BookWeb management when compared to its results for the past year, shown in the following table. Activity (cost) Incoming receipts ($300,000) Warehousing ($360,000) Shipments ($225,000) Cost Driver Number of purchase orders Number of inventory moves Number of shipments Cost Driver Quantity 2,000 9,000 15,000 % of Cost Driver for Books 70% 80 25 % of Cost Driver for Software 30% 20 75 Book sales revenue totaled $3,900,000 and software sales revenue totaled $2,600,000. A review of the company's activities found various inefficiencies with respect to the warehousing of books and the outgoing shipments of software. In particular, book misplacements resulted in an extra 550 moves and software had 250 incorrect shipments.
BookWeb, Inc., sells books and software over the Internet. A recent article in a trade journal has caught the attention of management because the company has experienced soaring inventory handling costs. The article notes that similar firms have purchasing, warehousing, and distribution costs that average 13 percent of sales. Thirteen percent is attractive to BookWeb management when compared to its results for the past year, shown in the following table. Activity (cost) Incoming receipts ($300,000) Warehousing ($360,000) Shipments ($225,000) Cost Driver Number of purchase orders Number of inventory moves Number of shipments Cost Driver Quantity 2,000 9,000 15,000 % of Cost Driver for Books 70% 80 25 % of Cost Driver for Software 30% 20 75 Book sales revenue totaled $3,900,000 and software sales revenue totaled $2,600,000. A review of the company's activities found various inefficiencies with respect to the warehousing of books and the outgoing shipments of software. In particular, book misplacements resulted in an extra 550 moves and software had 250 incorrect shipments.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Subject -acounting
Transcribed Image Text:BookWeb, Inc., sells books and software over the Internet. A recent article in a trade journal has caught the attention of
management because the company has experienced soaring inventory handling costs. The article notes that similar firms
have purchasing, warehousing, and distribution costs that average 13 percent of sales. Thirteen percent is attractive to
BookWeb management when compared to its results for the past year, shown in the following table.
Activity (cost)
Incoming receipts
($300,000)
Warehousing
($360,000)
Shipments
($225,000)
Cost Driver
Req E1
Number of
purchase orders.
Req E2
Number of
inventory moves
Number
of shipments
Cost
Driver
Quantity
2,000
9,000
15,000
Complete this question by entering your answers in the tabs below.
% of Cost
Driver for
Books
70%
How much additional cost cutting is needed to achieve the target percentages?
Additional cost cutting
80
25
of Cost
Driver
for Software
Book sales revenue totaled $3,900,000 and software sales revenue totaled $2,600,000. A review of the company's
activities found various inefficiencies with respect to the warehousing of books and the outgoing shipments of software. In
particular, book misplacements resulted in an extra 550 moves and software had 250 incorrect shipments.
30%
e-1. Do either of the product lines require additional cost cutting to achieve the target percentages?
e-2. How much additional cost cutting is needed to achieve the target percentages?
20
75
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