Question

Tiffany City Lighting (TCL)

Located in Philadelphia, PA, Tiffany City Lighting (TCL), which designs, builds custom lamp shapes, and lamp globes, historically derived all of its sales from customers in the United States and Canada. Recently, an architectural firm that often contracted with TCL was commissioned to design several large public buildings in India. These buildings would require TCL to supply 8,100 identical lights, and the relevant terms of sale would include delivery to the Port of Mumbai where the architectural firm would take possession.

TCL designed a prototype cylindrical lampshade that measured 11 inches high and 11 inches in diameter and would be packed into cartons that measured 12 inches by 12 inches by 12 inches. (We refer to these shades as Style A.) The Style A lamp shades would cost $4 each to manufacture and weighed nine pounds each; each carton cost 60 cents and weighed one pound, meaning that each loaded Style A carton weighed 10 pounds.

In an effort to reduce packaging costs and also enhance the company’s commitment to environmental logistics, TCL also developed two prototype lamp shades (referred to as Style B and Style C) in the shape of a cone, rather than a cylinder. One advantage to conical shades is that they can be nested, that is, stacked inside each other, meaning that, unlike Style A, multiple lamp shades could be packed into a single carton. Moreover, the nested shades would also help protect each other, although a slight bit of padding would be needed between the nested shades. The production costs for the conical lampshades would be higher than those for the cylindrical shades.

TCL determined that each Style B lamp shade would cost $4.50 to manufacture and could be shipped nested, with six lamp shades per carton. The carton dimensions were 12 inches by 12 inches by 40 inches, and when holding six shades, a carton weighed 62 pounds. Each Style B carton cost $2.00, and this included padding between the shades. Each Style C lamp shade would cost $5 to make and could be shipped nested, with 10 lamp shades per carton. The carton dimensions were 12 inches by 12 inches by 48 inches, and when holding 10 shades, a carton weighed 101 pounds. Each carton cost $2.25, including padding between the individual shades.

The lamp shades would be loaded into intermodal containers and transported by rail to the Port of Baltimore. The transportation cost to Baltimore was $300 per 20-foot container, without regard to weight, although the total shipment weight could not exceed 40,000 pounds per container because of highway weight restrictions. The interior dimensions of the intermodal container were 8 feet wide by 8.5 feet high by 20 feet long. Insurance costs were 2 percent of the value of the shipment ready to be loaded aboard ship in Baltimore (i.e., all of the company’s costs up to this point). TCL learned that the transportation cost from the Port of Baltimore to the Port of Mumbai were $1000 for a 20-foot container.

Note: Please note that when cartons are loaded on to a container, they cannot exceed the container weight capacity. Please provide explanations clearly and carefully.

QUESTIONS

1. How many Style A shades can be loaded into a 20-foot container? What is effective space used per container if Style A shades are loaded? How many containers to do you need to satisfy the contract? If there are multiple ways to load the cartons into a container, you have to explore them, show the calculations, and pick the best.

2. How many Style B shades can be loaded into a 20-foot container? What is effective space used per container if Style B shades are loaded? How many containers to do you need to satisfy the contract? If there are multiple ways to load the cartons into a container, you have to explore them, show the calculations, and pick the best.

3. How many Style C shades can be loaded into a 20-foot container? What is effective space used per container if Style C shades are loaded? How many containers to do you need to satisfy the contract? If there are multiple ways to load the cartons into a container, you have to explore them, show the calculations, and pick the best.

4. What are the total costs (which includes manufacturing, packaging, drayage, insurance, freight transportation) of delivering the Style A shades to the Port of Mumbai? Show the calculations.

5. What are the total costs (which includes manufacturing, packaging, drayage, insurance, freight transportation) of delivering the Style B shades to the Port of Mumbai? Show the calculations.

6. What are the total costs (which includes manufacturing, packaging, drayage, insurance, freight transportation) of delivering the Style C shades to the Port of Mumbai? Show the calculations.

7. Which style would you recommend? Why?

Answer 1

1.

For Style A:

12 inch = 1 Foot

Therefore, 12 * 12 * 12 inch = 1 Cubic feet

Container Volume: 8.5 * 8 * 40 = 2720 cubic feet

Available volume: 8 * 8 * 40 = 2560 cubic feet

Therefore, container can hold 2560 packages (8 * 8 * 40)

2.

For Style B:

12 * 12 * 40 inch = 1 * 1 * 3.33 = 3.33 Cubic feet

Container can hold 640 packages (2 * 8 * 40)

Therefore, 3840 lamps (640 *6 = 3840)

Weight requirement (62*640 = 39680) < 44000, therefore 3840 lamps can be loaded

3.

For Style C:

12 * 12 * 48 inch = 1 * 1 * 4 = 4 Cubic feet

Container can hold 640 packages (2 * 8 * 40)

Therefore, 6400 lamps (640 *10 = 6400)

Weight requirement (101*640 = 64640) > 44000, therefore 4356 lamps can be loaded

44000/10.1, 4356 lamps can be loaded

4.

Unit Production cost: $4

Number of units required: 8100

Therefore, total production cost = $4 * 8100 = $ 32400

Unit Packaging cost: $0.6

Number of units required: 8100

Therefore, total packaging cost = $0.6 * 8100 = $ 4860

Land rate to Vancouver: $1400

Number of units required: 8100

Number of style A lamps that container can load: 2560

Number of containers required: 8100/2560 = 3.16. Rounding to 4

Therefore, land rate = $1400*4 = $5600

Insurance Cost: 2% (Production + Packaging + Land Rate)

= 0.02 (32400 * 4860 * 5600) = $857.2

Freight rate: $800

Therefore, Freight rate = $800*4 = $3200

Total Cost = Production Cost + Packaging Cost + Land Rate + Insurance Cost + Freight rate

                = 32400 + 4860 + 5600 + 857.2 + 3200 = $ 46917.2

5.

Unit Production cost: $4.5

Number of units required: 8100

Therefore, total production cost = $4.5 * 8100 = $ 36450

Unit Packaging cost: $2

Number of units required: 8100

Number of required cartons: 1350

Therefore, total packaging cost = $2 * 1350 = $ 2700

Land rate to Vancouver: $1400

Number of units required: 8100

Number of style B lamps that container can load: 3840

Number of containers required: 8100/3840 = 2.10. Rounding to 3

Therefore, land rate = $1400*3 = $4200

Insurance Cost: 2% (Production + Packaging + Land Rate)

= 0.02 (36450 * 2700 * 4200) = $867

Freight rate: $800

Therefore, Freight rate = $800*3 = $2400

Total Cost = Production Cost + Packaging Cost + Land Rate + Insurance Cost + Freight rate

                = 36450 + 2700 + 4200 + 867 + 2400 = $ 46617

6.

Unit Production cost: $5

Number of units required: 8100

Therefore, total production cost = $5 * 8100 = $ 40500

Unit Packaging cost: $2.25

Number of units required: 8100

Number of required cartons: 810

Therefore, total packaging cost = $2.25 * 810 = $ 1822.5

Land rate to Vancouver: $1400

Number of units required: 8100

Number of style C lamps that container can load: 4356

Number of containers required: 8100/4356 = 1.85. Rounding to 2

Therefore, land rate = $1400*2 = $2800

Insurance Cost: 2% (Production + Packaging + Land Rate)

= 0.02 (40500 * 1822.5 * 2800) = $902.45

Freight rate: $800

Therefore, Freight rate = $800*2 = $1600

Total Cost = Production Cost + Packaging Cost + Land Rate + Insurance Cost + Freight rate

                = 40500 + 1822.5 + 2800 + 902.45 + 1600 = $ 47624.95

7.

Style B, as total cost is less than Style A and Style c.