T a r get pri c es, ta r get c o s ts, activity based c o s ting.

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 2007:

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 2007.

2 For 2008, retailers are demanding a 5% discount off the 2007 price. Pagnol Carrelages’ suppliers are only willing to give a 4% discount. Pagnol Carrelages expects to sell the same quantity of marble tiles in 2008 as it did in 2007. If all other costs and cost driver information remain the same, what will Pagnol Carrelages’ operating profit be in 2008?

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 redesign ing 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 Pagnol Carrelages achieve its target operating profit of €0.30 per tile in 2008? Show your calculations.