You are shipping 230 diamonds to a customer located 2,000 miles away. The averag
ID: 363327 • Letter: Y
Question
You are shipping 230 diamonds to a customer located 2,000 miles away. The average value of each diamond is $1,400. You can ship via air for $430 and the diamonds will arrive in two days or you can ship via a specialty ground carrier for $200 and the diamonds will arrive in six days. You figure your inventory carrying cost is 20 percent. Your customer will immediately transfer funds to your bank account on receipt of the shipment.
What is your total cost if you use the ground carrier and the air carrier? (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Total cost using air carrier:
Total cost using ground carrier:
Explanation / Answer
Following to be noted:
Total Inventory carrying cost of consignment of 230 diamonds at an average value of $1400 for 365 days
= 20% of $1400 x 230
= $64400
Total cost for each option
= Shipping cost + Prorated inventory carrying cost for transit days
= Shipping cost + Annual Inventory carrying cost/ 365 x Number of transit days
= Shipping cost + 64400/365 x Number of transit days
Thus,
Total cost using Air Carrier
= $430 + $64400/365 x 2
= $ 430 + $352.86
= $782.86
Total cost using ground carrier
= $200 + $64400/365 x 6
= $200 + $1058.63
= $1258.63
TOTAL COST USING AIR CARRIER = $782.86
TOTAL COST USING GROUND CARRIER = $1258.63
TOTAL COST USING AIR CARRIER = $782.86
TOTAL COST USING GROUND CARRIER = $1258.63
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