TI13-2 (similar to) Question Help Gala Inc. is a small distributor of mechanical

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TI13-2 (similar to) Question Help Gala Inc. is a small distributor of mechanical pencils. Gala identifies its three major activities and cost pools as ordering, receiving and storage, and shipping, and it reports the following details for 2016 (Click the icon to view the activity and cost pool details.) 1 (Click the icon to view additional information.) Read the reement (Click the icon to view the 2016 operating income. First, determine the selling price to retailers in 2017 The selling price per pack to retailers in 2017 is S Data Table Quantity of Cost Driver Cost per Unit of Cost Driver Activity 1. Placing and paying for orders of pencil packs 2. Receiving and storage 3. Shipping of pencil packs to retailers Cost Driver Number of orders 600 $100 per order $60 per load 1,500 90 per shipment Loads moved 5,000 Number of shipments PrintDone Reference More Info Total Per Unit 2,250,000 S 9.00 Revenues For 2016, Gala buys 250,000 pencil packs at an average cost of $4 per pack and sells them to retailers at an average price of $9 per pack. Assume Gala has no fixed costs and no inventories. For 2017, retailers are demanding a 7% discount off the 2016 price. Galas suppliers are only willing to give a 5% discount. Gala expects to sell the same quantity of pencil packs in 2017 as it did in 2016 Costs Purchase cost of pencils Ordering costs Receiving and storage Shipping 4.00 1,000,000 60,000 300,000 135,000 1.495,000 0.24 0.54 5.98 3.02 Print Done Total costs 755,000 S Operating income Print Done

Explanation / Answer

If the 5%Discount on 2016 price If the 7%Discount on 2016 price Placing & paying 600      100.00          60,000 Placing & paying 600      100.00          60,000 Receving & Storage 5000         60.00      3,00,000 Receving & Storage 5000         60.00      3,00,000 Shipping of Pencil 1500         90.00      1,35,000 Shipping of Pencil 1500         90.00      1,35,000      4,95,000      4,95,000 Units Rate Value Per unit Units Rate Value Per unit Sales    2,50,000           8.55    21,37,500           8.55 Sales    2,50,000           8.37    20,92,500           8.37 Purchase cost    2,50,000           4.00    10,00,000           4.00 Purchase cost    2,50,000           4.00    10,00,000           4.00 Placing & paying             600      100.00          60,000           0.24 Placing & paying             600      100.00          60,000           0.24 Receving & Storage          5,000         60.00      3,00,000           1.20 Receving & Storage          5,000         60.00      3,00,000           1.20 Shipping of Pencil          1,500         90.00      1,35,000           0.54 Shipping of Pencil          1,500         90.00      1,35,000           0.54 Total Variable Cost    14,95,000           5.98 Total Variable Cost    14,95,000           5.98 Contribution      6,42,500           2.57 Contribution      5,97,500           2.39 In the case even company gives 7% discount company will earn 2.39 per unit in total 597,500, So if Gala want to maintain sale of same level of quantity and then company can give 7% discount, since there is no fixed cost so this is the total profit of the company Selling Price per pack 8.37

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