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# Snappy Tiles - Operating Income Calculations

Snappy Tiles is a small distributor of marble tiles. Snappy identifies its three major activities and cost pools as ordering, receiving and storage, and shopping, and reports the following details for 2003:

Quantity of Cost per Unit of
Activity Cost Driver Cost Driver Cost Driver
1. Placing and paying for Number of orders 500 \$50 per order
orders of marble tiles

3. Shipping of marble tiles to Number of shipments 1,500 \$40 per shipment
retailers

Snappy buy 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.

1. Calculate Snappy's operating income for 2003
2. For 2004, retailers are demanding a 5% discount off the 2003 price. Snappy's suppliers are only willing to give a 4% discount. Snappy expects to sell the same quantity of marble tiles in 2004 as in 2003. If all other costs and cost-driver information remain the same, calculate Snappy's operating income for 2004.
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 to \$28. Will Snappy achieve its target operating income of \$0.30 per tile in 2004? Show
calculations.

#### Solution Preview

Snappy Tiles is a small distributor of marble tiles. Snappy identifies its three major activities and cost pools as ordering, receiving and storage, and shopping, and reports the following details for 2003:

Quantity of Cost per Unit of
Activity Cost Driver Cost Driver Cost Driver
1. Placing and paying for Number of orders 500 \$50 per order
orders of marble tiles