Wine Bin Supplies of Ellicott City, MD has three primary overhead activities as part of its wholesale operations: purchasing, warehousing, and distribution. Relevant costs, cost drivers, and per unit costs for each cost driver (activity) are listed below. Cost Qty of per Unit Total Cost of Cost Cost Activity Cost Driver Driver Driver # of Purchase Purchasing Orders 1,360 $150.00 $204,000 # of Warehouse Warehousing Moves 7,000 $30.00 $210,000 # of Distribution Shipments 500 $100.00 $50,000 The company currently purchases 100,000 bottles of wine each year from vineyards at an average cost of $10/bottle. The company then sells all the bottles to liquor stores in Maryland at an average selling price of $30/bottle. In addition to the purchase cost of the wine and the three primary overhead cotts noted above, the company also has fixed advertising costs of $250,000 each year. Info for upcoming fiscal year: Because of Covid-19, liquor stores are demanding a 10% discount in the average price that Wine Bin Supplies charges. After a big "gulp (excuse the pun), Wine Bin fortunately learned that the average price per bottle it pays vineyards would drop to $9.50 bottle. Management was still concerned however that the selling price concessions would hurt profits, and performed some value engineering. Specifically, they estimated that they could cut the number of purchase orders in half (to 680) while maintaining a cost per unit of cost driver of $150.00 per purchase order. Moreover, they could cut the cost per unit of cost driver on Distribution from $100 to $80 by adding less packing material. The number of shipments would not change however Info for upcoming fiscal year: Because of Covid-19, liquor stores are demanding a 10% discount in the average price that Wine Bin Supplies charges. After a big *gulp (excuse the pun), Wine Bin fortunately learned that the average price per bottle it pays vineyards would drop to $9.50 bottle. Management was still concerned however that the selling price concessions would hurt profits, and performed some value engineering. Specifically, they estimated that they could cut the number of purchase orders in half (to 680) while maintaining a cost per unit of cost driver of $150.00 per purchase order. Moreover, they could cut the cost per unit of cost driver on Distribution from $100 to $80 by adding less packing material. The number of shipments would not change however. Any further cost reductions have to come from value engineering the Warehousing activity. And that's where you come in! Required: Assuming the company expects to maintain its current volume of 100,000 bottles of wine in the upcoming fiscal year, what is the target cost for Warehousing if the firm desires to earn its current operating income level in the upcoming fiscal year
