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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:

Activity Cost Driver Quantity of Cost Driver Cost per Unit of Cost Driver

Purchasing Number of purchase orders $1,050$ $$155$ per order

Warehousing Number of moves $8,50035$ per move

Distributing Number of shipments $55085$ per shipment

Caldwell buys $100,500$ units at an average unit cost of $$15$ and sells them at an average unit price of $$25.$ The firm also has fixed operating costs of $$250,500$ for the year.

Caldwell$$s customers are demanding a $15\%$ discount for the coming year. The company expects to sell the same amount if the demand for price reduction can be met. Caldwell$$s suppliers, however, are willing to give only a $9\%$ discount.

Required:

Caldwell has estimated that it can reduce the number of purchase orders to $730$ and can decrease the cost of each shipment by $$8$ 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 year just completed:

Caldwell buys $100,500$ units at an average unit cost of $$15$ and sells them at an average unit price of $$25.$ The firm also

has fixed operating costs of $$250,500$ for the year.

Caldwell's customers are demanding a $15\%$ 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 $9\%$ discount.

Required:

Caldwell has estimated that it can reduce the number of purchase orders to $730$ and can decrease the cost of each

shipment by $$8$ 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?

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