Grouse Inc. is a small distributor of mechanical pencils. Grouse identifies its three major activities and cost pools as ordering, receivingand storage, and shipping, and it reports the following details for 2019:Requirement-If all other costs and cost-driver information remain the same, by how much must Grouse reduce its total costand cost per unit if it is to earn the same target operating income in 2020 as it earned in 2019 (and thereby earnits required rate of return on investment)?X ReferenceRevenuesCosts:Purchase cost of pencilsOrdering costsReceiving and storageShippingTotal costsOperating incomeOTotal$ 2,500,000 $1,500,000 $60,000 $240,000 $120,000 $1,920,000 $$ 580,000 $Data tablePer Unit10.006.000.240.960.487.682.32Activity1. Placing and paying for orders ofpencil packs2. Receiving and storage3. Shipping of pencil packs toretailersMore infoFor 2019, Grouse buys 250,000 pencil packs at an average cost of $6 per packand sells them to retailers at an average price of $10 per pack. Assume Grousehas no fixed costs and no inventories. For 2020, retailers are demanding a 5%discount off the 2019 price. Grouse's suppliers are only willing to give a 4%discount. Grouse expects to sell the same quantity of pencil packs in 2020 as it didin 2019.Cost DriverNumber of ordersLoads movedNumber of shipmentsPrintDoneQuantity of Cost per Unit of CostCost DriverDriver600$100 per order4,000$60 per load1,500 $80 per shipmentX

Operating income depends on the cost of goods and other operating cost and if it is required to…

ouse Inc. is a small distributor of mechanical pencils. Grouse identifies its three major activities and cost pools as ordering d storage, and shipping, and it reports the following details for 2019: Requirement If all other costs and cost-driver information remain the same, by how much must Grouse reduce its total cost and cost per unit if it is to earn the same target operating income in 2020 as it earned in 2019 (and thereby earn its required rate of return on investment)?

ouse Inc. is a small distributor of mechanical pencils. Grouse identifies its three major activities and cost pools as ordering d storage, and shipping, and it reports the following details for 2019: Requirement If all other costs and cost-driver information remain the same, by how much must Grouse reduce its total cost and cost per unit if it is to earn the same target operating income in 2020 as it earned in 2019 (and thereby earn its required rate of return on investment)?

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Question

Grouse Inc. is a small distributor of mechanical pencils. Grouse identifies its three major activities and cost pools as ordering, receiving
and storage, and shipping, and it reports the following details for 2019:
Requirement
-
If all other costs and cost-driver information remain the same, by how much must Grouse reduce its total cost
and cost per unit if it is to earn the same target operating income in 2020 as it earned in 2019 (and thereby earn
its required rate of return on investment)?
X

Reference
Revenues
Costs:
Purchase cost of pencils
Ordering costs
Receiving and storage
Shipping
Total costs
Operating income
O
Total
$ 2,500,000 $
1,500,000 $
60,000 $
240,000 $
120,000 $
1,920,000 $
$ 580,000 $
Data table
Per Unit
10.00
6.00
0.24
0.96
0.48
7.68
2.32
Activity
1. Placing and paying for orders of
pencil packs
2. Receiving and storage
3. Shipping of pencil packs to
retailers
More info
For 2019, Grouse buys 250,000 pencil packs at an average cost of $6 per pack
and sells them to retailers at an average price of $10 per pack. Assume Grouse
has no fixed costs and no inventories. For 2020, retailers are demanding a 5%
discount off the 2019 price. Grouse's suppliers are only willing to give a 4%
discount. Grouse expects to sell the same quantity of pencil packs in 2020 as it did
in 2019.
Cost Driver
Number of orders
Loads moved
Number of shipments
Print
Done
Quantity of Cost per Unit of Cost
Cost Driver
Driver
600
$100 per order
4,000
$60 per load
1,500 $80 per shipment
X

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