Reference no: EM132510166

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       1,130                     $163 per order

Warehousing                    Number of moves              8,200                        3 2per move

Distributing                       Number of shipments          630                             93 per shipment

• Caldwell buys 101,300 units at an average unit cost of $12 and sells them at an average unit price of $22. The firm also has fixed operating costs of $251,300 for the year.
• Caldwell's customers are demanding a 12% 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 4% discount.

Required:

Question 1: Caldwell has estimated that it can reduce the number of purchase orders to 810 and can decrease the cost of each shipment by $16 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?