Question 1. Total Cost Analysis Techniques for Logistics

ABC incorporation is planning to compare two logistics cost systems for shipping 100,000 LB of chemicals using an all-rail route from its plant. You are hired to do a static short-run and a dynamic long-run analysis using the following logistics cost information.

Plant Logistics Costs	System 1	System 2
Packaging	$1000	$0
Storage and handling	300	100
Inventory carrying	100	50
Administrative	150	50
Fixed Cost	8400	4800
Transportation costs
To market warehouse	0	300
To customer	1600	200
Warehouse Costs
Packaging	0	1000
Storage and handling	0	300
Inventory carrying	0	150
Administrative	0	150
Fixed Cost	0	4800
Total Cost	?	?

1. Calculate the total cost in the short run for both systems.
2. Which is system provide the lowest cost in the short run?
3. What is the variable cost per unit for system 1 and system 2?
4. Write the two equations you are going to use for your dynamic analysis?
5. What is Trade-off Point (in pounds) where the cost of the two systems is equal?
6. Which is system provide the lowest cost in the long run