Question

# Formulas: In-transit holding cost = (total shipment value) x (transit time in days/365) x (carrying cost...

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?

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

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