Business Logistics Homework 4 Questions.doc [Compatibility Mode] Q Search in Doc
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Business Logistics Homework 4 Questions.doc [Compatibility Mode] Q Search in Document Home InsertDesign Layout References Mailings Review View Times New Ro 12 , A A AS , AaBbCcDdEABbCcDdEAaBbCcD AaBbCcDdE Paste Heading 2 Styles Pane Heading 1 Title Business Logistics Homework 4 Questions - Please Show All Work 1. A manufacturer is considering the cost of establishing a warehouse for a market in which it currently ships all products directly to the customer. The current cost for an average direct-to- customer shipment of 1000 lbs. is $7.00 per cwt (hundredweight). The cost for volume shipments (10,000+ lbs.) to the market warehouse is S3.00 per cwt, and the cost for local delivery within the market from the warehouse is S2.50 per cwt. Can the manufacturer justify the use of a warehouse in this situation? Please show all work to arrive at your decision. Assumptions and alternatives are summarized below: " Manufacturer direct ship to customer aAverage shipment- 1000 lbs Freight rate to customer = $7.00 per cwt OR Ship to warehouse market at " Volume transport rate - S3.00 per cwt o a For shipments 10,000+ lbs o Local delivery within market $2.50 per cwt Page 1 of 2 363 Words English (US) + 160 %Explanation / Answer
Option 1: Manufacturer direct ship to customer
Transportation cost has only variable cost component @ $ 7 per cwt
So, cost of 1000 lbs shipment = 7*(1000/100) = $ 70
Option 2: Ship to market warehouse
Transportation cost to market warehouse is a minimum of $ 300 for first 10000 lbs
Transportation Cost = 3*(10000/100) = $ 300
Local delivery cost is variable @ $ 2.5 per cwt
Breakeven volume for warehouse feasibility = 300 / (7 - 2.5) = 67 cwt or 6700 lbs
Therefore, manufacturer can justify the use of a warehouse for minimum volume of 6700 lbs.
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