Suppose Jones Company has orders from three customers located in the same market
ID: 376525 • Letter: S
Question
Suppose Jones Company has orders from three customers located in the same market area. One order has a total weight of 4,300 pounds, the second weighs 9,000 pounds, and the third weighs 12,800 pounds. The transportation carrier quotes a freight rate of $18 per hundredweight (or cwt.) for direct shipment to the customer for shipments weighing 1,000 to 4,999 pounds, $16 per cwt. for orders weighing 5,000 to 9,999 pounds, and $14 for shipments weighing between 10,000 and 15,000 pounds. Alternatively, the carrier’s rate for shipments weighing more than 20,000 pounds is $10.00 per cwt. However, if the orders are combined into one consolidated shipment, the carrier will charge $330 for each stop it is required to make.
a. Calculate the total cost with or without consolidated shipment charge.
b. Should Jones consolidate the three shipments?
Explanation / Answer
A. Cost without consolidation
Shipment 1
Weight = 4,300 pound
Cost for 100 pounds = 18$
Total cost = 4,300*18/100 = 774$
Shipment 2
Weight = 9,000 pound
Cost for 100 pounds = 16$
Total cost = 9,000*16/100 = 1,440$
Shipment 3
Weight = 12,800 pound
Cost for 100 pounds = 14$
Total cost = 12,800*14/100 = 1,792$
Total cost without consolidation = 774 + 1,440 + 1,792 = 4,006 $
With consolidation
Total weight = 4,300 + 9,000 + 12,800 = 26,100 pounds
Cost per 100 pounds = 10$
Total shipment cost = 26,100 *10/100 = 2,610 $
Cost of each stop =330$
Number of stops = 3
Stop cost = 990$
Total cost to company = 2,610 + 990 = 3,600 $
B. Comparison
Cost in case of consolidation is lesser than separate packages. Hence, company should ship these packages together. Cost to Comapny will be less by 406$
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