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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 Cost Driver Number of purchase orders Number of moves Distributing Number of shipments Quantity of Cost Driver 1,180 8,700 680 Cost per Unit of Cost Driver $168 per order 37 per move 98 per shipment Caldwell buys 101,800 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 $251,800 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 860 and can decrease the cost of each shipment by $21 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 Cost Driver Number of purchase orders Number of moves Distributing Number of shipments Quantity of Cost Driver 1,180 8,700 680 Cost per Unit of Cost Driver $168 per order 37 per move 98 per shipment Caldwell buys 101,800 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 $251,800 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 860 and can decrease the cost of each shipment by $21 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?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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: Cost Driver Activity Purchasing Number of purchase orders Warehousing Number of moves Distributing Number of shipments Quantity of Cost Driver 1,180 8,700 680 Cost per Unit of Cost Driver $168 per order 37 per move 98 per shipment Caldwell buys 101,800 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 $251,800 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 860 and can decrease the cost of each shipment by $21 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?
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: Cost Driver Activity Purchasing Number of purchase orders Warehousing Number of moves Distributing Number of shipments Quantity of Cost Driver 1,180 8,700 680 Cost per Unit of Cost Driver $168 per order 37 per move 98 per shipment Caldwell buys 101,800 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 $251,800 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 860 and can decrease the cost of each shipment by $21 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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