The table below provides shipping rates for packages using UPS next day air or g
ID: 372147 • 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 12 pounds that needs to be shipped to zone 4. The value of the material is $10,000 and the annual inventory holding rate is 40 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 Ground Service Weight Domestic Zones - Transit Time in Days 1 2 3 4 5 6 7 1 Lbs. $ 4.75 $ 4.90 $ 5.25 $ 5.35 $ 5.65 $ 5.70 $ 5.85 2 $ 4.85 $ 5.15 $ 5.65 $ 5.80 $ 6.25 $ 6.40 $ 6.80 3 $ 5.00 $ 5.40 $ 6.00 $ 6.25 $ 6.70 $ 6.90 $ 7.55 4 $ 5.15 $ 5.60 $ 6.30 $ 6.60 $ 7.10 $ 7.30 $ 8.05 5 $ 5.40 $ 5.80 $ 6.60 $ 6.95 $ 7.40 $ 7.75 $ 8.55 6 $ 5.55 $ 6.00 $ 6.75 $ 7.20 $ 7.65 $ 8.05 $ 8.85 7 $ 5.75 $ 6.15 $ 6.90 $ 7.45 $ 7.95 $ 8.35 $ 9.25 8 $ 6.00 $ 6.35 $ 7.10 $ 7.60 $ 8.25 $ 8.75 $ 9.90 9 $ 6.20 $ 6.55 $ 7.25 $ 7.80 $ 8.45 $ 9.25 $ 10.55 10 $ 6.40 $ 6.70 $ 7.40 $ 8.00 $ 8.80 $ 9.90 $ 11.25 11 $ 6.60 $ 6.90 $ 7.55 $ 8.25 $ 9.20 $ 10.60 $ 12.05 12 $ 6.80 $ 7.10 $ 7.70 $ 8.45 $ 9.60 $ 11.35 $ 12.95 13 $ 7.00 $ 7.35 $ 7.85 $ 8.65 $ 10.05 $ 12.05 $ 13.80 14 $ 7.15 $ 7.55 $ 8.00 $ 8.85 $ 10.60 $ 12.75 $ 14.65 15 $ 7.35 $ 7.80 $ 8.15 $ 9.05 $ 11.15 $ 13.45 $ 15.55Suppose you have a package weighing 12 pounds that needs to be shipped to zone 4. The value of the material is $10,000 and the annual inventory holding rate is 40 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.)
Transit inventory cost for air transportation Total cost using air transportation Transit inventory cost for ground transportation Total cost using ground transportationa-2. Which transportation mode (air or ground) minimizes the total shipping and transit inventory cost? (Round your answer to 2 decimal places.)
transportation minimizes the total shipping and transit inventory cost byb. 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.)
Inventory holding rate %Explanation / Answer
a-1.
Ground transportation rate for 12 lb package to be shipped to zone 4 = $ 8.45
Transit inventory cost for ground transportation = 10000*0.4*4/365 = $ 43.84
Total cost using ground transportation = 8.45+43.84 = $ 52.29
Air transportation rate for 12 lb package to be shipped to zone 4 = $ 55.50
Transit inventory cost for air transportation = 10000*0.4*1/365 = $ 10.96
Total cost using air transportation = 55.50+10.96 = $ 66.46
a-2.
Ground transportation minimizes the total shipping and transit inventory cost
b.
In order to justify next day air service, holding rate (X) should be such that total cost of ground transportation is at least equal to that of air transportation.
10000*X*4/365+8.45 = 10000*X*1/365+55.5
10000*X*3/365 = 55.5 - 8.45
X = 0.57244 or 58 % (rounded up)
Inventory holding rate = 58 %
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