Jennifer: It seems reasonable to make a distinction between products that spend time in the distribu- tion center and those that do not. We should also distinguish between the receiving and shipping activities at the distribution center. All incoming shipments are packed on pallets and weigh one ton each (there are 14 cartons of paper per pallet). In 2013, the receiving department processed 56,000 tons of paper. Receiving employs 15 people at an annual cost of $600,000. Other receiving costs total about $500,000. I would recommend that these costs be assigned by using tons processed. Shipping, however, is different. There are two activities associated with shipping: picking the order from inventory and loading the paper. We employ 30 people for picking and 10 for load- ing, at an annual cost of $1,200,000. Other shipping costs total $1,100,000. Picking and loading are more concerned with the number of shipping items than with tonnage. That is, a shipping item may consist of two or three cartons instead of pallets. Accordingly, the shipping costs of the distribution center should be assigned by using the number of items shipped. In 2013, for example, we handled 190,000 shipping items. Ryan: These suggestions have merit. Kaylin, I would like to see what effect Jennifers sugges- tions have on the per-unit assignment of shipping and warehousing for LLHC. If the effect is significant, then we will expand the analysis to include all products. Kaylin: Im willing to compute the effect, but Id like to suggest one additional feature. Cur- rently, we have a policy to carry about 25 tons of LLHC in inventory. Our current costing sys- tem totally ignores the cost of carrying this inventory. Since it costs us $1,665 to produce each ton of this product, we are tying up a lot of money in inventorymoney that could be invested in other productive opportunities. In fact, the return lost is about 16% per year. This cost should also be assigned to the units sold. Ryan: Kaylin, this also sounds good to me. Go ahead and include the carrying cost in your com- putation. To help in the analysis, Kaylin gathered the following data for LLHC for 2013: Tons sold 10 Average cartons per shipment 2 Average shipments per ton 7 Required: 1. Identify the flaws associated with the current method of assigning shipping and warehousing costs to Sharps products. 2. Compute the shipping and warehousing cost per ton of LLHC sold by using the new method suggested by Jennifer and Kaylin. 3. Using the new costs computed in Requirement 2, compute the profit per ton of LLHC. Compare this with the profit per ton computed by using the old method. Do you think that this same effect would be realized for other low-volume products? Explain. 4. Comment on Ryans proposal to drop some high-volume products and place more emphasis on low-volume products. Discuss the role of the accounting system in supporting this type of decision making. 5. After receiving the analysis of LLHC, Ryan decided to expand the analysis to all products. He also had Kaylin reevaluate the way in which mill overhead was assigned to products. Af- ter the restructuring was completed, Ryan took the following actions: (a) the prices of most low-volume products were increased, (b) the prices of several high-volume products were decreased, and (c) some low-volume products were dropped. Explain why h