Quantity of Cost Driver Cost per Unit of Cost Driver Activity Cost Driver 1. Placing and paying for orders of marble tiles 2. Receiving and storage 3. Shipping of marble tiles to retailers Number of orders $50 per order $30 per load $40 per shipment 500 Loads moved 4,000 Number of shipments 1,500 For 2016, 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 2016. 2. For 2017, retailers are demanding a 5% discount off the 2016 price. Snappy's suppliers are only willing to give a 4% discount. Snappy expects to sell the same quantity of marble tiles in 2017 as in 2016. If all other costs and cost-driver information remain the same, calculate Snappy's operating income for 2017. Required 3. Suppose further that Snappy decides to make changes in its ordering and receiving-and-storing prac- tices. 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 recon- figuring 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 S0.30 per tile in 2017? Show your calculations.

Question

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 2016:

Quantity of
Cost Driver
Cost per Unit of
Cost Driver
Activity
Cost Driver
1. Placing and paying for orders of marble tiles
2. Receiving and storage
3. Shipping of marble tiles to retailers
Number of orders
$50 per order
$30 per load
$40 per shipment
500
Loads moved
4,000
Number of shipments
1,500
For 2016, 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 2016.
2. For 2017, retailers are demanding a 5% discount off the 2016 price. Snappy's suppliers are only willing
to give a 4% discount. Snappy expects to sell the same quantity of marble tiles in 2017 as in 2016. If
all other costs and cost-driver information remain the same, calculate Snappy's operating income
for 2017.
Required
3. Suppose further that Snappy decides to make changes in its ordering and receiving-and-storing prac-
tices. 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 recon-
figuring 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
S0.30 per tile in 2017? Show your calculations.
Expand
Transcribed Image Text

Quantity of Cost Driver Cost per Unit of Cost Driver Activity Cost Driver 1. Placing and paying for orders of marble tiles 2. Receiving and storage 3. Shipping of marble tiles to retailers Number of orders $50 per order $30 per load $40 per shipment 500 Loads moved 4,000 Number of shipments 1,500 For 2016, 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 2016. 2. For 2017, retailers are demanding a 5% discount off the 2016 price. Snappy's suppliers are only willing to give a 4% discount. Snappy expects to sell the same quantity of marble tiles in 2017 as in 2016. If all other costs and cost-driver information remain the same, calculate Snappy's operating income for 2017. Required 3. Suppose further that Snappy decides to make changes in its ordering and receiving-and-storing prac- tices. 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 recon- figuring 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 S0.30 per tile in 2017? Show your calculations.

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