Emu Inc is considering two truck services to make deliveries from its manufacturing plant to its central
Question:
Emu Inc is considering two truck services to make deliveries from its manufacturing plant to its central warehouse. Orange Transportation is cheaper, but also is slower and less reliable than Blue Transportation. The following information regarding the system and the transportation alternatives are available:
Parameter | Value |
Average demand | 80/day |
Standard deviation of demand | 12 units |
Order cost | $150/order |
Product price | $50/unit |
Shipping quantity | As per EOQ |
In-transit inventory carrying rate | 30% |
On-site inventory carrying rate | 20% |
In-stock probability during lead time | 90% |
Out-of-stock costs | Unknown |
Selling days | 360 days/year |
Orange Transportation | Blue Transportation | |
Average transit time | 7 days | 3 days |
Standard deviation of transit time | 1.8 days | 1.2 days |
Rate | $11.45/unit | $11.55/unit |
Currently, a reorder point approach is being used for inventory control at the warehouse. From the point of view of inventory costs and transportation costs, which truck service should be selected?
Managerial Accounting
ISBN: 978-0078111006
14th edition
Authors: Ray Garrison, Eric Noreen and Peter Brewer