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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 $101,200$ units at an average unit cost of $$11$ and sells them at an average unit price of $$21.$ The firm also has fixed

operating costs of $$251,200$ for the year.

Caldwell's customers are demanding a $11\%$ 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 $3\%$ discount.

Required:

Caldwell has estimated that it can reduce the number of purchase orders to $800$ and can decrease the cost of each shipment by $$15$

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?