Decorative Tiles Lid is a small company distributing wall tiles to the trade and retail stores. The company has identified three major cost pools, ordering, storage and shipping. The following information relates to actual activities in the year ended 30th April 2010: Activity Cost driver Qty of usage Cost of cost Cost of cost (number of) of cost driver driver: variable driver: fixed Ordering Orders 5,000 orders $60 per order E360,000 Storage Loads moved 20,000 loads f30 per load $600,000 Shipping Shipments 16,000 $50 per $400,000 shipments shipment The general fixed costs were 1,000,000. The sales were 5,000,000 tiles at $5 per tile and average cost of purchase was $3.75 per tile. For the year ending 30th April 2011, Decorative Tiles Ltd forecasts a 5% reduction in selling price due to competitive conditions. The company considers that the same number of tiles as in 2010 can be sold if the price is reduced by 5%. However suppliers of tiles will give only a 4% reduction in price. Through arrangements with suppliers and reconfiguration of their internal operations Decorative Tiles Ltd considers that the following can be achieved: Activity Cost driver Qty of usage Cost of cost Cost of cost (number of) of cost driver driver: variable driver: fixed Ordering Orders 3,000 orders f40 per order $360,000 Storage Loads moved 15,000 loads f35 per load $600,000 Shipping Shipments 16,000 $50 per $400,000 shipments shipment General fixed cost would remain the same as 2010. The company wishes to achieve at least as much profit in 2011 as in 2010. Required: a) Calculate the net income and the net income as a percentage of sales made by Decorative Tiles Ltd for the year ended 30th April 2010. (5 marks) b) Assuming that general fixed costs are allocated based on numbers of tiles ordered and using appropriate cost drivers, calculate the contribution, the Activity Based Cost net income, and the net income as a percentage of sales, for each of the following two orders:Activity Sales Order 672 Sales Order 680 Tiles ordered 80,000 1,000 Ordering 50% of 3 different orders 20% of 8 different orders Storage 4 loads moved 9 loads moved Shipping 1 shipment 2 shipments (8 marks) c) Compare the features of the two orders and comment on the reasons for differences in profitability. (3 marks) d) Using the figures provided above prepare a budget for year ended 30th April 2011. (4 marks) e) The company is considering adding a fixed charge on all sales orders of 1,000 tiles or less. In 2010, this amounted to 2,000 orders. Assuming that the same pattern continues, calculate the charge per order which would be needed meet the company's profit target. Using information from (b) above discuss a different way of setting a charge for complicated orders.