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 of motor carriers and rail to move its product to its customer. ABC is contemplating using an all-motor option for this move. Use the following information to answer the questions at the end:

Price per unit = $1000 Net cost per unit = $700 Daily demand = 500 units Inventory carrying cost = 30% Rail cost = 3% of the price of the product Motor carrier cost = 10% of the price of the product ABC owns the inventory up to the delivery at the customers DC

Current Mode Mix Activity - Days - Mode 1. ABC plant to ABC DC - 1 - motor 2. Through ABC DC - 2 - - 3. ABC DC to rail - 1 - motor 4. Railhead to railhead - 12 - rail 5. Railhead to cust. DC - 1 - motor 6. Through customer DC - 2 - - 7. Customer DC to store - 1 - motor

Proposed Mode Mix Activity Days Mode 1. ABC plant to ABC DC - 1 - motor 2. Through ABC DC - 2 - - 3. ABC DC to cust. DC - 5 - motor 4, Through customer DC - 2 - - 5. Customer DC to store - 1 - motor

Questions 1. For the current mode mix, what is the percent days in transit compared to the total days that ABC owns the inventory? (5 points)

2. What is the percent change in the percent of days in transit from the current mode mix to the proposed mode mix for when ABC owns the inventory? (10 points)

3. What is the difference in inventory carrying cost between the current and proposed mode mixes? What is the percent change in inventory carrying cost between the two-mode mixes? (10 points)

4. What is the difference in freight cost (transportation cost) between the two-mode mixes? What is the percent change in freight cost between the two-mode mixes? (10 points)

5. What is the total change in cash flow between the two-mode mixes? (5 points) Hint: When transportation costs are based on the product price, you need to calculate Revenue before you get the cost. Revenue = Price Per Unit * Daily demand * Days.