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In: Operations Management

Determine which shipping alternative would be most economical to ship 55 boxes of parts when each...

Determine which shipping alternative would be most economical to ship 55 boxes of parts when each box has a price of $270 and holding costs are 30 percent of price, given this shipping information: overnight, $365, two-day, $225, six-day, $255. (Round your intermediate calculations to 2 decimal places.)

Overnight

Two-day

Six-day

Solutions

Expert Solution

Demand = 55

Price = 270

Holding Cost = 30% of 270 = 81

Ordering costs-

Overnight delivery = 365

Two Day = 225

Six Days = 255

EOQ for Overnight Delivery = sqrt(2*Demand*Ordering Cost/Holding Cost) = sqrt(2*55*365/81) = 22.26 ~ 23

Total Cost = Total Ordering Cost + Total Holding Cost = Demand*Ordering Cost/EOQ + EOQ*Holding Cost/2 = 55*365/23 + 23*81/2 = 1804.326

EOQ for Two Day Delivery = sqrt(2*Demand*Ordering Cost/Holding Cost) = sqrt(2*55*225/81) = 17.48 ~ 18

Total Cost = Total Ordering Cost + Total Holding Cost = Demand*Ordering Cost/EOQ + EOQ*Holding Cost/2 = 55*225/18 + 18*81/2 = 1416.5

EOQ for Six Day Delivery = sqrt(2*Demand*Ordering Cost/Holding Cost) = sqrt(2*55*255/81) = 18.6 ~ 19

Total Cost = Total Ordering Cost + Total Holding Cost = Demand*Ordering Cost/EOQ + EOQ*Holding Cost/2 = 55*255/19 + 19*81/2 = 1507.658

On comparing Total Cost in each alternative we shall find that the alternative of choosing Two Day delivery is less expensive.

Answer: Two Day Deliver

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keosha answered 1 year ago
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