Mode Mix Problem $(40$ points$)$

ABC Power Tools is currently making shipments from its plant in New Jersey to a customer location in

California. ABC currently uses a mix a motor carriers and rail to move its product to its customer. ABC is

contemplating using an all motor carrier option for this move. Use the following information to answer the

questions.

$$ Price per unit $=$ $$750$

$$ Net Cost$/$unit aka Cost of Goods$/$unit $=$ $$500$

$$ Daily demand $=800$ units and $365$ days of sales

$$ Inventory carrying cost $=25\%$

$$ Local Motor Carrier Costs $=$ $$600($Plant to DC$,$ DC to Railhead & Railhead to Customer DC$)$

$$ Cross Country Rail cost $=$ $$2,800$

$$ Cross Country Motor carrier cost $=$ $$6,000$

$$ ABC owns the inventory up to the delivery at the customer$$s DC

$$ Assume that the truck$/$shipping container can hold $1000$ units

Current Mode Mix

Activity Days Mode

$1.$ ABC plant to ABC DC $1$ motor

$2.$ Through ABC DC $10-$

$3.$ ABC DC to rail $1$ motor

$4.$ Railhead NJ to railhead CA $13$ rail

$5.$ Railhead to cust. DC $2$ motor

Proposed Mode Mix

Activity Days Mode

$1.$ ABC plant to ABC DC $1$ motor

$2.$ Through ABC DC $10-$

$3.$ ABC DC vis Truck to Cust. DC $5$ motor

QUESTIONS ON THE NEXT PAGE

Questions

$1.$ What is average ABC inventory $($stated in dollars$)$ for the current mode mix and the proposed mode

change?

$2.$ What is the difference in inventory carrying cost between the current and proposed mode mix?

$3.$ What is the difference in freight cost between the two mode mixes?

$4.$ What is the total change in cash flow between the two mode mixes?

$5.$ Considering only cash flow, do you recommend making the proposed mode change?