The table below provides shipping rates for packages using UPS next day air or g
ID: 326827 • Letter: T
Question
The table below provides shipping rates for packages using UPS next day air or ground service options. The rates vary according to both the weight of the package and the distance of the shipment (larger numbered zones are farther away). Note that the zone number also indicates the number of days required to deliver a package using ground service. For example, it would take three days and cost $7.40 to send a 10-pound package to zone 3 using ground service.
Suppose you have a package weighing 4 pounds that needs to be shipped to zone 4. The value of the material is $11,500 and the annual inventory holding rate is 20 percent of the product value.
a-1. Calculate the total shipping and transit inventory cost using the air and ground transportations. (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 2 decimal places.)
a-2. Which transportation mode (air or ground) minimizes the total shipping and transit inventory cost? (Round your answer to 2 decimal places.)
b. How high would the inventory holding rate have to be in order to justify next day air service? (Use 365 days in a year. Do not round intermediate calculations. Round up your answer to the next whole number.)
Table of Shipping Rates Next Day Service Weight Domestic Zones 1 2 3 4 5 6 7 1 Lbs. $ 16.25 $ 19.25 $ 22.75 $ 24.75 $ 27.00 $ 28.25 $ 29.00 2 $ 17.25 $ 20.75 $ 25.50 $ 27.75 $ 30.25 $ 31.25 $ 32.00 3 $ 19.00 $ 21.75 $ 28.25 $ 30.50 $ 33.50 $ 34.75 $ 35.50 4 $ 20.00 $ 22.75 $ 31.00 $ 33.50 $ 36.50 $ 37.75 $ 38.50 5 $ 21.25 $ 24.25 $ 33.50 $ 36.25 $ 39.50 $ 40.75 $ 41.75 6 $ 22.00 $ 25.25 $ 36.00 $ 39.00 $ 42.75 $ 44.00 $ 45.00 7 $ 22.75 $ 27.00 $ 38.50 $ 42.00 $ 46.00 $ 47.00 $ 48.25 8 $ 23.75 $ 28.25 $ 41.00 $ 44.75 $ 49.25 $ 50.25 $ 51.25 9 $ 24.50 $ 29.75 $ 43.75 $ 47.50 $ 52.50 $ 53.75 $ 54.50 10 $ 25.25 $ 31.00 $ 46.25 $ 50.25 $ 55.25 $ 56.75 $ 57.75 11 $ 26.25 $ 32.50 $ 48.75 $ 52.75 $ 58.00 $ 60.00 $ 60.75 12 $ 27.00 $ 33.50 $ 51.25 $ 55.50 $ 60.75 $ 63.00 $ 63.75 13 $ 27.75 $ 34.75 $ 53.75 $ 58.00 $ 63.25 $ 65.75 $ 66.50 14 $ 28.50 $ 36.00 $ 55.75 $ 60.50 $ 65.75 $ 68.50 $ 69.25 15 $ 29.50 $ 37.50 $ 58.00 $ 63.00 $ 68.25 $ 70.75 $ 72.00 2 The title below pri des sa engraies or packages uang UPS next dayar or ground sence opens a10-pound package to Zone 3 using gound serve, The ates an accoong to both the we are of the package and he teance of hem etaper awayh Note that the zone numerao maes tenue et ofdays naaed to deher apackage usig gund servee ror exampe taald take me das and cost $7 4O to sendExplanation / Answer
a-1) For air transport
Total shipping cost= $33.5 (see weight column value 4 and zone row value 4 in first table)
For Transit inventory cost
Annual inventory holding rate = 20% of $11,500= $2,300
Daily inventory holding cost= Annual inventory holding cost/365=$6.30
Thus, in one day transit, transit inventory cost= $6.30
For ground transport
Total shipping cost= $6.6 (see weight column value 4 and zone row value 4 in second table)
For Transit inventory cost
Annual inventory holding rate = 20% of $11,500= $2,300
Daily inventory holding cost= Annual inventory holding cost/365=$6.30
Thus, in four days’ transit, transit inventory cost= $6.3*4=$25.21
a-2)
Total cost (shipping + transit inventory) for air transport = $33.5+$6.30 = $39.80
Total cost (shipping + transit inventory) for ground transport= $6.6+$25.21=$31.81
Ground transport is thus minimizing the total cost.
a-3) Currently, inventory holding cost is 20% of the value of the product.
If the value is more than or equal to 29% of the value of the product, it will warrant the use of next day air transport.
Calculations behind this: (at inventory cost of 29% of product value)
Calculations at inventory cost of 20% of product value (original)
Category Ground Air Difference Shipping cost 6.6 33.5 Transit Inventory Cost 36.54 9.14 Total 43.15 42.64 -0.05Related Questions
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