A company has goods in transit 365 days per year and its annual hold cost is 40%
ID: 348186 • Letter: A
Question
A company has goods in transit 365 days per year and its annual hold cost is 40%. options for shipping several crates of electronics, with a total value of $250,000 There are 3 logistics Option A. Shipping Cost $3,500 Total Duration 3 calendar days Multi-Mode Description 1. 2. 3. 1. 2. 1. 2. Truck to airport, Air Cargo to local airport, Truck to final destination Train to transfer point, Truck to final destination Inland waterway port to destination port. Truck to final destination $1,800 6 calendar days $1,500 8 calendar days 1A. Determine the best OPTION based on economics. (7 points) 18. In Option C, the company offered assigning an extra truck driver to expedite the shipment on the trucking segment. Analyze the economics of the proposal. (3 points)Explanation / Answer
1A.
There will be two components of cost for the three options:
1. Cost of shipping
2. Cost of holding the goods during the transit days
Lets work it out for all the cases:
A:
Cost of Shipping: $3500
Cost of holding: $((3/365)*250000*0.4=$ 821.92
Total cost= $3500+$821.92=$4321.92
B:
Cost of Shipping: $1800
Cost of holding: $((6/365)*250000*0.4=$ 1643.84
Total cost= $1800+$1643.84=$3443.84
C:
Cost of Shipping: $1500
Cost of holding: $((8/365)*250000*0.4=$ 2191.78
Total cost= $1500+$2191.78=$3691.78
Hence comparing the three options economically, the best option is option B
1B.
The cost of holding the good for 1 day: $(1/365)*250000*0.4=$ 273.97
The cost difference between option B & C: $3691.78-$3443.84=$247.94
Which means that even if option C is expedited by 1 day due to addition of a new driver, option C will become the most economically viable option
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