Table 1. Estimated cost of ‘Sunbeam’ appliances at Coles’ selected stores. Costs $ Variable acquisition cost per appliance $15 Fixed costs to distribute these appliances Salaries and wages Quality assurance After-sales services (e.g. warranty, substitution) $17,000 9,000 3,800 Total fixed costs $29,800 Coles Melbourne Central is an Australian-based exclusive store of Coles Group, an Australian chain of supermarkets. Its bulk of sales is made on fresh produces. Coles Melbourne Central store identifies three major activities and cost pools related to the fresh produces: ordering (from Coles Distribution Centre), receiving (from Coles Distribution Centre) and shelfing (Table 2): Table 2. Activities at Coles Melbourne Central and Activity cost rates. Activity Cost driver Qty of cost driver Cost per unit of cost driver Ordering from Coles DC # of orders 500 $50 per order Receiving from Coles DC # of loads moved 400 $30 per load Shelf-stocking # of shelfing hrs 1500 $40 per hour In 2023, Coles Melbourne Central store ordered 75,000 fresh produces at an average cost of acquisition of $7 per produce. The fresh produces are sold to customers at an average price of $9. Assume that Coles Melbourne Central store has no fixed costs and no inventories on fresh produces. Required: a) Calculate the operating profit of Coles Melbourne Central store for fresh produces (total and per produce, including percentage of unit profit with respect to price). Show all calculations. [1] b) In 2024, a marketing report shows that customers’ price of fresh produces should be reduced by a 5% discount off the current price, in line with their major competitor, Woolworths. However, Coles Distribution Centre has informed Coles Melbourne Central store that farmers are only willing to give a 4% discount on fresh produces. Coles Melbourne Central store expects to sell the same quantity of produces in 2024 with respect to 2023. If all other costs and cost-driver information remain the same, calculate Coles Melbourne Central store’s expected operating profit in 2024 (total and per produce, including percentage of unit profit with respect to price). Show all calculations. [2] c) Assume that, in 2024, Coles Melbourne Central store will also be able to make changes in its ordering, receiving, and stock-shelfing practices, following Coles Distribution Centre’s new practices. Coles Melbourne Central store expects to reduce the number of orders to 200 and the cost per order to $25. By accepting the reconfiguration of crates in which fresh produces are moved, from Coles Distribution Centre, Coles Melbourne Central expects to reduce the number of loads moved to 325 and the cost per load moved to $28. Advise the management of Coles Melbourne Central store on whether it will achieve a target operating profit of $0.72 per fresh produce in 2024. Show your calculations (total and per produce, including percentage of unit profit with respect to price). [2] d) Should Coles Melbourne Central store’s managers set market-based (target) or costbased prices? Detail your explanation. [1]
Table 1. Estimated cost of ‘Sunbeam’ appliances at Coles’ selected stores.
|
Costs |
$ |
|
Variable acquisition cost per appliance |
$15 |
|
Fixed costs to distribute these appliances Salaries and wages Quality assurance After-sales services (e.g. warranty, substitution) |
$17,000 9,000 3,800 |
|
Total fixed costs |
$29,800 |
Coles Melbourne Central is an Australian-based exclusive store of Coles Group, an Australian chain of supermarkets. Its bulk of sales is made on fresh produces. Coles Melbourne Central store identifies three major activities and cost pools related to the fresh produces: ordering (from Coles Distribution Centre), receiving (from Coles Distribution Centre) and shelfing (Table 2):
Table 2. Activities at Coles Melbourne Central and Activity cost rates.
|
Activity |
Cost driver |
Qty of cost driver |
Cost per unit of cost driver |
|
Ordering from Coles DC |
# of orders |
500 |
$50 per order |
|
Receiving from Coles DC |
# of loads moved |
400 |
$30 per load |
|
Shelf-stocking |
# of shelfing hrs |
1500 |
$40 per hour |
In 2023, Coles Melbourne Central store ordered 75,000 fresh produces at an average cost of acquisition of $7 per produce. The fresh produces are sold to customers at an average price of $9. Assume that Coles Melbourne Central store has no fixed costs and no inventories on fresh produces.
Required:
a) Calculate the operating profit of Coles Melbourne Central store for fresh produces (total and per produce, including percentage of unit profit with respect to price). Show all calculations. [1]
b) In 2024, a marketing report shows that customers’ price of fresh produces should be reduced by a 5% discount off the current price, in line with their major competitor, Woolworths. However, Coles Distribution Centre has informed Coles Melbourne Central store that farmers are only willing to give a 4% discount on fresh produces. Coles Melbourne Central store expects to sell the same quantity of produces in 2024 with respect to 2023. If all other costs and cost-driver information remain the same, calculate Coles Melbourne Central store’s expected operating profit in 2024 (total and per produce, including percentage of unit profit with respect to price). Show all calculations. [2]
c) Assume that, in 2024, Coles Melbourne Central store will also be able to make changes in its ordering, receiving, and stock-shelfing practices, following Coles Distribution Centre’s new practices. Coles Melbourne Central store expects to reduce the number of orders to 200 and the cost per order to $25. By accepting the reconfiguration of crates in which fresh produces are moved, from Coles Distribution Centre, Coles Melbourne Central expects to reduce the number of loads moved to 325 and the cost per load moved to $28. Advise the management of Coles Melbourne Central store on whether it will achieve a target operating profit of $0.72 per fresh produce in 2024. Show your calculations (total and per produce, including percentage of unit profit with respect to price). [2]
d) Should Coles Melbourne Central store’s managers set market-based (target) or costbased prices? Detail your explanation. [1]
Step by step
Solved in 2 steps
