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 Number of purchase orders Number of moves Number of shipments Quantity of Cost Driver 1,040 8,400 540 Maximum cost Cost per Unit of Cost Driver $154 per order 34 per move 84 per shipment Caldwell buys 100,400 units at an average unit cost of $14 and sells them at an average unit price of $24. The firm also has fixed operating costs of $250,400 for the year. Caldwell's customers are demanding a 14% 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 720 and can decrease the cost of each shipment by $7 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?
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 Number of purchase orders Number of moves Number of shipments Quantity of Cost Driver 1,040 8,400 540 Maximum cost Cost per Unit of Cost Driver $154 per order 34 per move 84 per shipment Caldwell buys 100,400 units at an average unit cost of $14 and sells them at an average unit price of $24. The firm also has fixed operating costs of $250,400 for the year. Caldwell's customers are demanding a 14% 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 720 and can decrease the cost of each shipment by $7 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
Number of purchase orders
Number of moves
Number of shipments.
Quantity of Cost
Driver
1,040
8,400
540
Maximum cost
Cost per Unit of Cost Driver
$154 per order
34 per move
84 per shipment
Caldwell buys 100,400 units at an average unit cost of $14 and sells them at an average unit price of $24. The firm also has fixed
operating costs of $250,400 for the year.
Caldwell's customers are demanding a 14% 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 720 and can decrease the cost of each shipment by $7
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?
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