Louis Wholesale Distributors uses an ABC system to determine the cost of handling its products. One important activity is receiving shipments in the warehouse. Three resources support that activity:

 (1). Recording and record keeping,

 (2). Labour and

 (3). Inspection.
Recording and record keeping is a variable cost driven by number of shipments received. The cost per shipment is €18. Labour is driven by pounds of merchandise received. Because labour is hired in shifts, it is fixed for large ranges of volume. Currently, labour costs are running €32,200 per month for handling 460,000 kilos. This same cost would apply to all volumes between 300,000 kilos and 550,000 kilos.
Finally, inspection is a variable cost driven by the number of boxes received. Inspection costs are €3.75 per box. One product distributed by Louis Wholesale Distributors is confectionery. There is a wide variety of confectionery so many different shipments are handled in the warehouse. In July, the warehouse received 500 shipments, consisting of 4,000 boxes weighing a total of 80,000 kilos.
1. Compute the cost of receiving confectionery shipments during July.
2. Management is considering elimination of brands of confectionery that have small sales levels. This would reduce the warehouse volume to 200 shipments, consisting of 3,000 boxes weighing a total of 60,000 kilos. Compute the amount of savings from eliminating the small-sales-level brands.
3. Suppose receiving costs were estimated on a per-kilo basis. What was the total receiving cost per kilo of confectionery received in July? If management had used this cost to estimate the effect of eliminating the 20,000 kilos of confectionery, what mistake might be made?