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:

Caldwell buys $101,000$ units at an average unit cost of $$20$ and sells them at an average unit price of $$30.$ The firm also has fixed operating costs of $$251,000$ for the year.

Caldwell's customers are demanding a $20\%$ 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 $15\%$ discount.

Required:

Caldwell has estimated that it can reduce the number of purchase orders to $780$ and can decrease the cost of each shipment by $$13$ with minor changes in its operations. Any further cost savings must come from reengineering the warehousing processes. What is the maximum cost $($i$.$e$.,$ target cost$)$ for warehousing if the firm desires to earn the same amount of profit next year?

Maximum cost