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Required: Caldwell has estimated that it can reduce the number of purchase orders to 690 and can decrease the cost of each shipment by S4 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?

Required: Caldwell has estimated that it can reduce the number of purchase orders to 690 and can decrease the cost of each shipment by S4 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?

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter14: Quality And Environmental Cost Management
Section: Chapter Questions
Problem 3CE: Ross Company implemented a quality improvement program and tracked the following for the five years:...
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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 Marehousing Distributing Cost Driver Number of purchase orders Number of moves Number of shipments Quantity of Cost per Unit of Cost Driver Cost Driver 1,010 8,100 510 Maximum cost $151 per order 31 per move 81 per shipment Caldwell buys 100,100 units at an average unit cost of $11 and sells them at an average unit price of $21. The firm also has fixed operating costs of $250,100 for the year. Caldwell's customers are demanding a 11% 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 3% discount. Required: Caldwell has estimated that it can reduce the number of purchase orders to 690 and can decrease the cost of each shipment by S4 with minor changes in its operations. Any further cost savings must come from reengineering the warehousing processes. What is the maximum cost (le, 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: Activity Purchasing Marehousing Distributing Cost Driver Number of purchase orders Number of moves Number of shipments Quantity of Cost per Unit of Cost Driver Cost Driver 1,010 8,100 510 Maximum cost $151 per order 31 per move 81 per shipment Caldwell buys 100,100 units at an average unit cost of $11 and sells them at an average unit price of $21. The firm also has fixed operating costs of $250,100 for the year. Caldwell's customers are demanding a 11% 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 3% discount. Required: Caldwell has estimated that it can reduce the number of purchase orders to 690 and can decrease the cost of each shipment by S4 with minor changes in its operations. Any further cost savings must come from reengineering the warehousing processes. What is the maximum cost (le, target cost) for warehousing if the firm desires to earn the same amount of profit next year?
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