Homework $2$

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 $2016$:

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.

Required:

$1.$ 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 $2017.$

$3.$ Suppose further that Snappy decides to make changes in its ordering and receiving$-$and$-$storing

practices. 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 reconfiguring 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 $$0\mathrm{.}30$ per tile in $2017?$ Show your

calculations.