The table below provides shipping rates for packages using UPS next day air or g

Question

The table below provides shipping rates for packages using UPS next day air or ground service options. The rates vary according to both the weight of the package and the distance of the shipment (larger numbered zones are farther away). Note that the zone number also indicates the number of days required to deliver a package using ground service. For example, it would take three days and cost $7.40 to send a 10-pound package to zone 3 using ground service.

Suppose you have a package weighing 3 pounds that needs to be shipped to zone 5. The value of the material is $6,000 and the annual inventory holding rate is 20 percent of the product value.

a-1. Calculate the total shipping and transit inventory cost using the air and ground transportations. (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. How high would the inventory holding rate have to be in order to justify next day air service? (Use 365 days in a year. Do not round intermediate calculations. Round up your answer to the next whole number.)

000050550555050 005570225777520 7925815814703692 233344455566667 555550055500505 227770027700757 6814704703603580 233344455566667 505555505555055 885058295209865 7567888990122345 050005050505555 025557025207272 92580358 45556666 000055555005555 749370372963074 6566778889901223 570369 23333 550050050550000 775520075275050 4470369247025803 h-st . 2 2 3 3 3 3 4 4 4 5 5 5 5 6 6 550005555000505 627146924826061 in 5 5 6 6 7 7 7 7 88899001 505000005555550 752050507272770 3258136813681358 222333344445555 505050500055555 T- 382692468024680 4556667777888889 555555055000500 277722027055705 2901245789123467 122222222333333 550005005050505 260367912457801 550050550550500 220020775220755 050000555000550 914680135791358 2455556666667777 1679012234567789 111222222222222 550505500000055 780145702468013 1445555566666777 9 23456789012345

Explanation / Answer

Package details :

Weight : 3 lbs

Destination = Zone 5

Value = $6,000

Annual inventory holding cost = 20% = 0.2*6000 = $1200/year

So per day inventory holding cost = 1200/365 = $3.29

a-1:

Air transportation cost (as per matrix) = $33.50

Number of days of transit = 1 (next day delivery) so transit inventory cost = 1*3.29 = $3.29

Therefore total cost using air transportation = 33.5 + 3.29 = $36.79

Ground transportation cost (as per matrix) = $6.70

Number of days of transit = 5 (as per zone number) so transit inventory cost = 5*3.29 = $16.44

Therefore total cost using ground transportation = 6.7 + 16.44 = $23.14

a-2: Ground transporation minimizes the total shipping and transit inventory cost by (36.79 - 23.14)= $13.65

a-3: Let us assume the new transit inventory cost per day be 'X'

To justify next day air service, total cost of air and ground transport should be same (if costs are same air service would be preferred as transit period is smaller)

So if we equate both costs in the above case,

33.50 + (1*X) = 6.70 + (5*X)

Solving the equation for X, we get X = $6.7/day which is 6.7*365 = $2445.5 / year

2445.5/6000 = 40.76%

So in order to justify next day delivery, annual inventory holding rate should atleast be 40.76%

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.