Caldwell Supply, a wholesaler, has determined that its operations have three primary activities: purchasing, warehousing, and distributing. The firm reports the following operating data for the year just completed: Activity Purchasing Warehousing Distributing Driver Cost Driver Quantity of Cost Driver Cost per Unit of Cost Number of purchase orders 1,160 Number of moves 8,500 Number of shipments 660 $166 per order 35 per move 96 per shipment Caldwell buys 101,600 units at an average unit cost of $15 and sells them at an average unit price of $25. The firm also has fixed operating costs of $251,600 for the year. Caldwell's customers are demanding a 15% discount for the coming year. The company expects to sell the same amount if the demand for price reduction can be met. Caldwell's suppliers, however, are willing to give only a 8% discount. Required: Caldwell has estimated that it can reduce the number of purchase orders to 840 and can decrease the cost of each shipment by $19 with minor changes in its operations. Any further cost savings must come from reengineering the warehousing processes. What is the maximum cost (i.e., target cost) for warehousing if the firm desires to earn the same amount of profit next year? Maximum cost
Caldwell Supply, a wholesaler, has determined that its operations have three primary activities: purchasing, warehousing, and distributing. The firm reports the following operating data for the year just completed: Activity Purchasing Warehousing Distributing Driver Cost Driver Quantity of Cost Driver Cost per Unit of Cost Number of purchase orders 1,160 Number of moves 8,500 Number of shipments 660 $166 per order 35 per move 96 per shipment Caldwell buys 101,600 units at an average unit cost of $15 and sells them at an average unit price of $25. The firm also has fixed operating costs of $251,600 for the year. Caldwell's customers are demanding a 15% discount for the coming year. The company expects to sell the same amount if the demand for price reduction can be met. Caldwell's suppliers, however, are willing to give only a 8% discount. Required: Caldwell has estimated that it can reduce the number of purchase orders to 840 and can decrease the cost of each shipment by $19 with minor changes in its operations. Any further cost savings must come from reengineering the warehousing processes. What is the maximum cost (i.e., target cost) for warehousing if the firm desires to earn the same amount of profit next year? Maximum cost
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Caldwell Supply, a wholesaler, has determined that its operations have three primary activities: purchasing, warehousing, and
distributing. The firm reports the following operating data for the year just completed:
Activity
Purchasing
Warehousing
Distributing
Quantity of Cost
Cost Driver
Driver
Cost per Unit of Cost
Driver
Number of purchase orders
1,160
Number of moves
8,500
Number of shipments
660
$166 per order
35 per move
96 per shipment
Caldwell buys 101,600 units at an average unit cost of $15 and sells them at an average unit price of $25. The firm also has fixed
operating costs of $251,600 for the year.
Caldwell's customers are demanding a 15% discount for the coming year. The company expects to sell the same amount if the demand
for price reduction can be met. Caldwell's suppliers, however, are willing to give only a 8% discount.
Required:
Caldwell has estimated that it can reduce the number of purchase orders to 840 and can decrease the cost of each shipment by $19
with minor changes in its operations. Any further cost savings must come from reengineering the warehousing processes. What is the
maximum cost (i.e., target cost) for warehousing if the firm desires to earn the same amount of profit next year?
Maximum cost
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