Question

Formulas:

In-transit holding cost =
(total shipment value) x (transit time in days/365) x (carrying cost factor)

total cost of shipping (consolidation or break bulk) = shipping cost + pick-up and/or delivery charges

total cost of shipping (direct shipping) = shipping cost

Hint: shipping cost = total shipment weight x shipping rate total shipment weight = sum of the weights of all shipments pick-up charges = (cost per pickup) x ( # of suppliers) delivery charges = (cost per delivery) x ( # of customers)

A firm must ship a parcel of 30 items valued at $500 each a distance of 1,000 miles (FOB destination). Transportation options are 8-day ground for $50 or 2-day air for $90. Holding cost is 20% of product value. How should the firm ship their product?

Answer 1

In-transit holding cost =(total shipment value) x (transit time in days/365) x (carrying cost factor)

In-transit holding cost, for air = (30*500) * (2/365) * 20% = $16.438

In-transit holding cost, for ground = (30*500) * (8/365) * 20% = $65.753

Total shiiping cost for air = Shipping cost + holding cost = $90 + $16.438 = $106.44

Total shiiping cost for ground = Shipping cost + holding cost = $50 + $65.753 = $115.753

Firm should use air -2 day mode to ship the product