Question

3. (10 pts) Flanger is an industrial distributor that sources from hundreds of suppliers. Flanger uses a third party transportation company to ship its products. The two modes of transportation available for inbound shipping are LTL (less than truckload) and TL (truckload). LTL shipping costs $1 per unit, whereas TL shipping costs $400 per truck. Each truck can carry up to 1,000 units, Flanger wants to decide the shipping mode (TL or LTL) based on annual demand of the products. The material cost per unit is $50 and Flanger uses a holding cost of 25%. Flanger incurs a fixed cost of $70 for each order placed with a supplier a) If the annual demand is 6,000 units, which transportation mode should Flanger use? b) If the annual demand is 3,000 units, which transportation mode should Flanger use? Hint: you need to consider three types of costs annual holding cost, annual transportation cost and annual order placement cost (supplier). For LTL, the total cost will be Pienc + $1 :D + Pri Suplier C+ S + constant, how do Compare this equation with the total cost learned in class: TC = we determine the optimal order size using LTL? For TL, the total cost will be TL HC + Strans + Or Supplies Compare this equation with the total cost learned in class: TC = C + S + constant, how do we determine the optimal order size using TL? Please note that although this transportation mode is named "Truckload", it does not necessarily mean that the optimal order quantity Q* for this mode has to be 1,000. You pay $400 to the transportation company, but can load any quantity between 1 unit and 1,000 units. We need to compare the total cost for both modes and decide which one is better

Answer 1

The answer for above problem is explained below.

9 LTL Given that, Shipping cost $1 per unit Annual demand (D)= 6,000 units Material cost per unit = $50 Holding cost = 25% of $50 - 0.25 x $50 Holding cost (h) = $12.5 order cost (K) = $70 And Economic order quantity Q = | 2D XK 2x 6,000 Units X $70 QE $12.5 Q = 67,200 Q = 259.23 units Calculation of Total cost for LTL

Total cost (LTL) = ( 9 x he]+C+1x) + ( a Sopone] = { 254.qavit #125] + (#1 x 16,0mounty) 16,000 Units X $707 I 259.23 Units = $,620 .1875 + $ 6,000 + $ 1,620.183 - $9,240.37) . For LTL The Total cost is = $9,240.37 calculation of Total cost for TL for Th, The Total cost = (bsp;29 * $125) A les 1600] (50

= $ 1620.1875 + $9,258.1877 + $ 1,620.183 - $12,498.56 select . By comparing both costs Finger should LTL mode Because it has lower cost. Ons units Given, Annual demand Material Cost Holding cost order cost = 3,000 = $50 = $19.5 = $70 Economic order quantity, 2D XK Q- 2x 3,000 units X $70 $ 12.5 Q = 33,600 Q = 183.3 Units

Calculation of Total cost for LTh mode - [ aute ne] + 610 33 4C Spore = { 163,3 cm x $12.5] + [ $1 x 3.00 units] r 3,000 units x $701 183.3 unity = $ 1,145.625 + $3,000 + $ 1145.663 = $ 5291.29 calculation of Total cost for Th mode = { 165, wat * $ 45) Corlik * *600] 183.3 unit + 3,000 units X $70 - I 183.3 units

= $1,145.625 + $6,546.64 + $1,145.663 - $ 8,839.93 :. Flonger should select LTL model which lower Cost compare with Th mode.