Required:

Caldwell has estimated that it can reduce the number of purchase orders to 690 and can decrease the cost of each shipment by $4 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?

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 yearjust completed: Quantity of Cost Cost per Unit of Activity Cost Driver Driver Cost Driver Purchasing Number of purchase orders 1,010 $151 per order Warehousing Number of moves 8,100 31 per move Distributing Number of shipments 510 81 per shipment Caldwell buys 100,100 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 $250,100 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 690 and can decrease the cost of each shipment by $4 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? _:|