Question

Monczka-Trent Shipping is the logistics vendor for Handfield Manufacturing Co, in Ohio. Handfield has daily shipments of a power-steering pump from its Ohio plant to an auto assembly line in Alabama. The value of the standard shipment is $250,220. Monczka-Trent has two options: (1) its standard 2-day shipment or (2) a Subcontractor who will team drive overnight with an effective delivery of 1 day. The extra driver costs S 180 Hand ields holding cost is 35% annually for this kind of inventory a) is more economical, with a daily cost of s(Enter your response as a whole number) Alternative 1 Altemative 2

Answer 1

Shipment value is $250220

Yearly holding cost is 35% of shipment value

Yearly holding cost = 0.35*250220 =$87577

One day holding cost = $\frac{yearlycost}{365}$ =$\frac{87577}{365}$ = $239.94

Extra cost of subcontracting is $180 (given)

Thus we can observe that subcontracting is less than each day holding cost

Thus, Alternative 2 is more economical

Savings = 239.9 -180 =$59.9 or $60

Alternative 2 is more economical with a daily cost of $60