Brainfodder.net.au sells books and software over the internet. A recent article in a trade journal has caught the attention of management, given that the company has experienced soaring inventory-handling costs. The article noted that similar firms have purchasing, warehousing and distribution costs that average 13 per cent of sales, which is attractive when compared with Brainfodder.net.au's results for the past year.

The following information is available:

Cost driver Activity (Cost) Cost driver quantity Incoming receipts Number of purchase orders 2 000 ($600 000) Warehousing ($720 000) Number of inventory moves 9 000 Outgoing shipments Number of shipments 15 000 ($450 000) Percentage of cost driver activity for books 70% 30 25