Pagnol-Carrelages SNC is a small distributor of marble tiles. Pagnol-Carrelages identifies its three major activities and cost pools as ordering, receiving and storage, and shipping, and reports the following details for 2018: 

Pagnol-Carrelages 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. Fixed costs are €40,000. 

Required

1. Calculate Pagnol-Carrelages’ operating profit for 2018. 

2. For 2019, retailers are demanding a 5% discount off the 2018 price. Pagnol-Carrelages’ suppliers are only willing to give a 4% discount. Pagnol-Carrelages expects to sell the same quantity of marble tiles in 2019 as it did in 2018. If all other costs and cost driver information remain the same, what will Pagnol-Carrelages’ operating profit be in 2019?

3. Suppose further that Pagnol-Carrelages decides to make changes in its ordering, and receiving and storing practices. By placing long-term orders with its key suppliers, it expects to reduce the number of orders to 200 and the cost per order to €25. By redesigning the layout of the warehouse and reconfiguring the crates in which the marble tiles are moved, Pagnol-Carrelages expects to reduce the number of loads moved to 3125 and the cost per load moved to €28. Will PagnolCarrelages achieve its target operating profit of €0.30 per tile in 2019? Show your calculations.

Transcribed Image Text:

Quantity of Cost per unit of cost driver Activity cost driver Cost driver 1 Placing and paying for orders of marble tiles Number of orders 500 €50 per order 2 Receiving and storage 3 Shipping of marble tiles to retailers Number of loads moved €30 per load €40 per shipment 4000 Number of shipments 1500