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 2020.
Activity Cost Driver Quantity of
Cost Driver
Cost per Unit
of Cost
Driver
1. Placing and paying for orders of
marble tiles
Number of
orders
500 $50 per order
2. Receiving and storage Loads
moved
4,000 $30 per load
3. Shipping of marble tiles to retailers Number of
shipments
1,500 $40 per
shipment
For 2020, 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:
a) Calculate Snappy’s operating income for 2020.
b) For 2018, retailers are demanding a 5% discount off the 2020 price. Snappy’s suppliers
are only willing to give a 4% discount. Snappy expects to sell the same quantity of
marble tiles in 2018 as in 2017. If all other costs and cost-driver information remain the
same, calculate Snappy’s operating income for 2021.
c) Suppose further that Snappy decides to make changes in its ordering and receivingand-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 $0.30 per
tile in 2018? Show your calculations.