In: Operations Management
Landed cost calculation You have been asked to calculate the landed cost for two apple producers. Farm A, can produce apples for $25 per bushel. Farm A has a fixed transportation cost of $0.50/unit/mile. Farmer B can produce their apples for $20/bushel but has higher transportation cost of $0.60/unit/mile. For this example, there are no other cost. Knowing this information calculate the following: What is the landed cost per unit for each of the products if their main market is 40 miles away
Farmer A =
Farmer B =
A can produce for $25 per bushel
The transportation cost is $0.5/unit/mile.
The market is 40 miles away.
Hence the total transportation cost = 40*0.5 = $20 per bushel
Hence total cost of farmer A = $25+$20 = $45 per bushel
B can produce for $20 per bushel
The transportation cost is $0.6/unit/mile.
The market is 40 miles away.
Hence the total transportation cost = 40*0.6 = $24 per bushel
Hence total cost of farmer B = $20+$24 = $44 per bushel