Target prices, target costs, activity-based costing systems. Snappy Tiles is a small dis¬

tributor of marble tiles. Snappy identifies its three major activities and cost pools as ordering, receiving and storage, and shipping, and reports the following details for 2007:

Activity Cost Driver Quantity of Cost Driver Cost per Unit of Cost Driver 1. Placing and paying for orders ofmarble tiles Number of orders 500 $60 per order 2. Receiving and storage Number of loads moved 4,000 $36 per load 3. Shipping of marble tiles to retailers Number ofshipments 1,500 $48 per shipment Snappy buys 250,000 marble tiles at an average cost of $3.60 per tile and sells them to retailers at an average price of $4.80 per tile. Fixed costs are $48,000.

Required 1. Calculate Snappy’s operating income for 2007.

2. For 2008, retailers are demanding a 5% discount off the 2007 price. Snappy’s suppliers are only willing to give a 4% discount. Snappy expects to sell the same quantity ofmarble tiles in 2008 as it did in 2007. If all other costs and cost driver information remain the same, what will Snappy’s operating income be in 2008?

3. Suppose further that Snappy decides to make changes in its ordering and receiving and storing practices. By placing long-term orders with its key suppliers, it expects to reduce the number oforders to 200 and the cost per order to $30 per order. By redesigning the layout ofthe ware¬
house and reconfiguring the crates in which the marble tiles are moved, Snappy expects to reduce the number of loads moved to 3,125 and the cost per load moved to $33.60. Will Snappy achieve its target operating income of $0.36 per tile in 2008? $how your calculations.