A brick maker (BM) in Alberta mixes dry ink into its

ipper B

Freight Cost

$525

450

410

bricks to make them brown.

BM's demand for dry ink is 60 tons per year. Currently,

BM buys the dry ink from an import merchant that buys the ink from an East Coast U.S. manufacturer. The shipments arrive in lot size of 30 tons by rail. The current cost of dry ink is C$612.22 per ton, including rail transportation cost to

near Toronto that

facturer located in 000 units per year. rs are purchased in ors transfers to the question is, which would the appliance from Winnipeg to $2 per motor, and it The trucking com-only three days. The units as safety stock lety stock if a train days per year. If the cost per year, which total transportation

Hint: The value of a ety stock holding cost

BM's location. BM currently keeps 6 tons of dry ink as safety stock. BM's buyer has asked the import merchant to quote a price for truck deliveries in smaller lot sizes. The merchant has quoted C$567.78 per ton for a lot size of 20 tons.

In the meantime, BM's buyer has contacted the manufacturer directly and asked if BM could purchase dry ink directly from the manufacturer. The answer was affirmative and the

cost would be US$386.89 per ton (assume US$1 = C$1.05).

A common carrier has quoted a price of C$2,600 to haul a full truckload of dry ink (20 tons) from the manufacturer to BM's location in Alberta. The trip will take seven days.

The holding cost rate for BM is 20 percent of unit cost per year. For truck deliveries, BM will hold only 2 tons of safety stocks. Assume 365 days per year. Which alternative has the lowest total annual purchase, transport, in-transit, safety stock, and average cycle stock holding cost? (Hint: The value of dry ink in Alberta for calculating the safety stock and cycle stock holding cost of truck deliveries should include the freight cost