Target prices, target costs, activity-based costing. Snappy Tiles is a small distributor of marble tiles. Snappy identifies its three major activities and cost pools as ordering, receiving and storage, and shipping, and it reports the following details for 2008:

For 2008, Snappy buys 250,000 marble tiles at an average cost of $3 per tile and sells them to retailers at an average price of $4 per tile. Assume Snappy has no fixed costs and no inventories.

1. Calculate Snappy’s operating income for 2008.

2. For 2009, retailers are demanding a 5% discount off the 2008 price. Snappy’s suppliers are only willing to give a 4% discount. Snappy expects to sell the same quantity of marble tiles in 2009 as in 2008. If all other costs and cost-driver information remain the same, calculate Snappy’s operating income for 2009.

3. Suppose further that Snappy decides to make changes in its ordering and receiving-and-storing practices. By placing long-run orders with its key suppliers, Snappy expects to reduce the number of orders to 200 and the cost per order to $25 per order. By redesigning the layout of the warehouse and reconfiguring the crates in which the marble tiles are moved, Snappy expects to reduce the number of loads moved to 3,125 and the cost per load moved to $28. Will Snappy achieve its target operating income of $0.30 per tile in 2009? Show your calculations.

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Quantity of Cost per Unit of Cost Driver $50 per order S30 per load $40 per shipment Cost Driver Cost Driver Activity 1. Placing and paying for orders of marble tiles Number of orders 500 4,000 1,500 2. Receiving and storage 3. Shipping of marble tiles to retailers Loads moved Number of shipments