T-Mobile Wi-Fi 6:01 AM Learning Goals in Review Donegal Footwear is an internati
ID: 385442 • Letter: T
Question
T-Mobile Wi-Fi 6:01 AM Learning Goals in Review Donegal Footwear is an international supplier of outdoor footwear for adventurous families. Currently, the company uses a logistical provider to provide warehouse services and handle packages destined for ground delivery. The contract calls for S9 million in annual fixed charges, which covers the provider's overhead and warehouse costs, and variable costs of $15 per package shippe Recently, Donegal Footwear found a warehouse it could lease at a cost of $16 million per year, which includes lease costs, labor, and management oversight. Furthermore, the company found another provider who would deliver packages from the warehouse for $6.00 per package. Considering only costs, how many packages must Donegal Footwear ship to make the vertical integration into warehouse operations beneficial?Explanation / Answer
Answer:
Provider 1
Fixed cost = $9,000,000
Shipping charges = $15 per package
Provider 2
Fixed cost = $16,000,000
Shipping charges= $6 per package
To make the vertical integration successful=
Difference in fixed cost = $7,000,000
Difference in shipping cost= $9 per package
Therefore, to make the transition profitable= 7,000,000/9= 777,778 packages
Donegal Footwear must ship minimum of 777,778 packages to meet the difference in fixed costs of two logistical provider
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