Reference no: EM132514249

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                                        32                             per 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:

Question1 : 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?