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:
| Quantity of
Activity cost driver |
Cost per unit of cost driver | Cost driver | |
| 1. Placing and paying for | Number of | 500 | €50 per order |
| orders of marble tiles | orders | ||
| 2. Receiving and storage | Number of | 4000 | €30 per load |
| 3. Shipping of marble tiles | loads moved
Number of |
1500 | €40 per shipment |
| to retailers | shipments | ||
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
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?
Solution
Operating profit= 250000 * 4*.95 – 250000 * 3*.96 – 40000 – 500 * 50 – 4000 * 30 – 1500 * 40
= – 15000
……….
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