Baseball Card Emporium (BBE) of Lewistown, Pennsylvania, is a distributor of baseball cards to sports card retailers. Its market area encompasses most of Pennsylvania, eastern Ohio, and New Jersey. The cards are printed in Neenah, Wisconsin, and currently shipped to Lewistown via motor carrier transportation. Kenny Craig, vice president of logistics, has asked his staff to evaluate using air carrier service to ship the cards.
Nick Gingher, director of distribution, has collected the following information:
Annual demand: 5,000 cases of cards
Case value (price): $200 each
Inventory carrying cost (annual): 28%
Cost per order to replenish inventory: $100
In-transit inventory carrying cost: 18%
Transit time using motor carrier: 2 days
Motor time carrier rate: $0.80 per cwt. (100 lbs.)
Air carrier time: $1.50 per cwt.
Unit weight: 50 lbs. per case
1. What is the economic order quantity for BBE in units? In pounds?
2. What would the total cost (not considering transportation-related costs) of the EOQ?
3. What is the total cost for using motor carrier transportation?
4. What is the total cost for using air carrier transportation?
5. Which alternative should BBE use?