Question
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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