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 Cost Driver Quantity of Cost Driver Number of purchase orders 1,070 8,700 570 Number of moves Number of shipments Cost per Unit of Cost Driver $157 per order 37 per move 87 per shipment Caldwell buys 100,700 units at an average unit cost of $17 and sells them at an average unit price of $27. The firm also has fixed operating costs of $250,700 for the year. Caldwell's customers are demanding a 17% 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 11% discount. Required: Caldwell has estimated that it can reduce the number of purchase orders to 750 and can decrease the cost of each shipment by $10 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 Cost Driver Quantity of Cost Driver Number of purchase orders 1,070 8,700 570 Number of moves Number of shipments Cost per Unit of Cost Driver $157 per order 37 per move 87 per shipment Caldwell buys 100,700 units at an average unit cost of $17 and sells them at an average unit price of $27. The firm also has fixed operating costs of $250,700 for the year. Caldwell's customers are demanding a 17% 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 11% discount. Required: Caldwell has estimated that it can reduce the number of purchase orders to 750 and can decrease the cost of each shipment by $10 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
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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
Cost Driver
Quantity of Cost
Driver
Cost per Unit of Cost
Driver
Number of purchase orders
1,070
Number of moves
8,700
Number of shipments
570
$157 per order
37 per move
87 per shipment
Caldwell buys 100,700 units at an average unit cost of $17 and sells them at an average unit price of $27. The firm also has fixed
operating costs of $250,700 for the year.
Caldwell's customers are demanding a 17% 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 11% discount.
Required:
Caldwell has estimated that it can reduce the number of purchase orders to 750 and can decrease the cost of each shipment by $10
with minor changes in its operations. Any further cost savings must come from reengineering the warehousing processes. What is the
maximum cost (.e., target cost) for warehousing if the firm desires to earn the same amount of profit next year?
Maximum cost
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