Target prices, target costs, activity-based costing systems. (25-30 minutes) Pagnol-Carrelages, SNC, is a small distributor of marble tiles.

Pagnol-Carrelages identifies its three major activities and cost pools as ordering, receiving and storage, and shipping, and reports the following details for 2000: lop5

REQUIRED 1. Calculate Pagnol-Carrelages’ operating profit for 2002.
2. For 2000,retailers are demanding a 5% discount off the 2002 price. PagnolCarrelages’ suppliers are only willing to give a 4% discount. Pagnol-Carrelages expects to sell the same quantity of marble tiles in 2000 as it did in 2002. If all other costs and cost driver information remain the same, what will PagnolCarrelages’ operating profit be in 2001?
3. Suppose further that Pagnol-Carrelages 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 of orders to 200 and the cost per order to EUR 25. By redesigning the layout of the warehouse and reconfiguring the crates in which the marble tiles are moved, Pagnol Carrelages expects to reduce the number of loads moved to 3, 125 and the cost per load moved to EUR 28. Will Pagnol-Carrelages achieve its target operating profit of EUR 0.30 per tile in 2001? Show your calculations.

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QUANTITY OF COST PER UNIT OF ACTIVITY 1. Placing and paying for orders of marble tiles 2. Receiving and storage COST DRIVER COST DRIVER COST DRIVER Number of 500 EUR 50 per order orders Number of 4,000 EUR 30 per load loads moved 3. Shipping of marble tiles Number of 1,500 EUR 40 per to retailers shipments shipment Pagnol-Carrelages buys 250,000 marble tiles at an average cost of EUR 3 per tile and sells them to retailers at an average price of EUR 4 per tile. Fixed costs are EUR 40,000.