Question

Suppose Jones Company has orders from three customers located in the same market area. One order has a total weight of 3,600 pounds, the second weighs 8,300 pounds, and the third weighs 12,100 pounds. The transportation carrier quotes a freight rate of $20 per hundredweight (or cwt.) for direct shipment to the customer for shipments weighing 1,000 to 4,999 pounds, $18 per cwt. for orders weighing 5,000 to 9,999 pounds, and $16 for shipments weighing between 10,000 and 15,000 pounds. Alternatively, the carrier’s rate for shipments weighing more than 20,000 pounds is $13.00 per cwt. However, if the orders are combined into one consolidated shipment, the carrier will charge $260 for each stop it is required to make. Calculate the total cost with or without consolidated shipment charge.

a) total cost using separate shipments

b) total cost using consolidated shipment

Answer 1

Order weights respectively :-

one order - 3600 pounds

second order - 8300 pounds

third order - 12100 pounds

Transportation costs are as follows:-

1000 to 4999 pounds = $ 20/100pounds

5000 to 9999 pounds = $ 18/100 pounds

10000 to 15000 pounds = $ 16/100 pounds

a,} cost of transportation for seperate shipments:-

first order - 3600/100 = 36 cwt * $ 20 = $720/-

second order = 8300/100 = 83 cwt * $ 18= $1494/-

third order = 12100/100 = 121 cwt * $ 16 = $1936/-

total seperate shipment cost to Jones company will be $4150/-

b.} total cost using consolidated shipment:-

Consolidated shipment is a method of shipping whereby an agent (freight forwarder or consolidator) combines individual consignments from various shippers into one shipment made to a destination agent, for the benefit of preferential rates. The consolidation is then de-consolidated by the destination agentinto its original component consignments and made available to consignees. Consolidation provides shippers access to better rates than would be otherwise attainable.

if the shipment weigh more than 24000 pounds then the cost will be 24000/100 = 240 cwt * $13 = $3120/-

three customers will have three different stops.

cost of per carrier stop is $260/-

stops = 3

3* $260/- = $780/-.

therefore total cost incurred to Jones company by using consolidated shipment will be:-

$3120 + $780/- = $3900/-.

Hence consolidated shipment is much cheaper from sending seperate shipments.