Question

Richard’s Sporting Goods needs to fill an online order for 164 hockey sticks. The manager is...

Richard’s Sporting Goods needs to fill an online order for 164 hockey sticks. The manager is considering shipping the order by truck to the customer in Wisconsin, at a carrier charge of $105. The delivery will take five days and the order is paid on delivery (Richard’s doesn’t get paid until the sticks are received). The hockey sticks are valued at $85 for each stick and Richard’s uses a 25 percent annual inventory carrying charge.

a. What will be the total shipping and transit inventory cost of the shipment? (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 2 decimal places.)

b-1. If the shipment could be delivered in only 2 days at a cost of $155, then what will be the total shipment cost? (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 2 decimal places. )

b-2. If the manager chose the above option, how much money would be saved or lost? (Round your answer to 2 decimal places.)

Business   Operations-Management   
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Answer #1

Total value of hockey sticks = $85 / stick x 164 sticks = $13940

Total annual inventory carrying charge ( @25% ) = $ 0.25 x 13940 = $3485

Total daily inventory carrying charge = $3485/365 = $9.547

  1. Delivery time of order = 5 days

Therefore, total inventory carrying charges for 5 days = $9.547 x 5 = $47.735

Carrier charge = $105

Therefore, total carrier plus inventory charges = $105 + $47.735 = $152.735

b-1) Shipping cost for 2 days transit = $155

Total inventory carrying charges for 2 days = $9.547 x 2 = $19.094

Total carrier plus inventory charges = $155 + $19.094 = $174.09 ( rounded to 2 decimal places )

B2) It is to be noted that total cost of 2 days transit shipping > Total cost of 5 days transit shipping

Amount of money will be lost = $174.09 - $152.735 = $21.355 ( $21.35 rounded to 2 decimal places )

AMOUNT OF MONEY WHICH WILL BE LOST = $21.35
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