Number 12/13: Mode Mix 1. To achieve this service improvement, you will need to
ID: 3148751 • Letter: N
Question
Number 12/13: Mode Mix
1. To achieve this service improvement, you will need to invest in more reliable transpo The increased freight expense is 20% of the inventory savings between the current servo proposed service. What is the annual net cash flow increase (decrease) for the proposec a. $9,000.00 b. $10,200.00 c. $8,100.00 d. none of the above Problem 4: Mode Mix Price per unit $125 Net cost per unit = $75 Demand per day (units) = 2000 Inventory carrying cost = 30% In-transit inventory carrying cost-18% Motor carrier transportation cost = 0.09% of inventory value Ocean transportation cost 0.00938% of inventory value Rail transportation cost = 0.01199% of inventory value Cost of capital = 15% ABC company owns the inventory up to delivery at customer DC For this problem, make sure you adjust the annual carrying cost rates to daily ratesExplanation / Answer
12.
Total change in inventory carrying cost= change in inventory carrying cost + In- transit inventory carrying cost
=(32-27)*18%cost + (3-3)*30%cost= 5*0.18*75*2000=$135000
thus the inventory carrying cost reduction is $135,000.
13. total % change transportation cost=-motor cost+ rail cost {only difference between the two systems}
=-3*0.09%+8*0.01199%= -0.17408% cost
=-0.17408*75*2000
=-$261.12
total change in cash flow is = $135000- $261=$134,738.88
Thus the answer is D. none of the above.
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