Question

The table below provides shipping rates for packages using UPS next day air or ground service options. The rates vary according to both the weight of the package and the distance of the shipment (larger numbered zones are farther away). Note that the zone number also indicates the number of days required to deliver a package using ground service. A transportation manager must ship orders of materials weighing three pounds each to destinations in each of the seven zones listed in the table. The daily inventory holding rate is $5.50 per day for all orders. The manager has decided to use next day air service for all shipments.

	Table of Shipping Rates
Next Day Service Weight	Domestic Zones
	1			2			3			4			5			6			7
1 Lbs.	$	16.25		$	19.25		$	22.75		$	24.75		$	27.00		$	28.25		$	29.00
2	$	17.25		$	20.75		$	25.50		$	27.75		$	30.25		$	31.25		$	32.00
3	$	19.00		$	21.75		$	28.25		$	30.50		$	33.50		$	34.75		$	35.50
4	$	20.00		$	22.75		$	31.00		$	33.50		$	36.50		$	37.75		$	38.50
5	$	21.25		$	24.25		$	33.50		$	36.25		$	39.50		$	40.75		$	41.75
6	$	22.00		$	25.25		$	36.00		$	39.00		$	42.75		$	44.00		$	45.00
7	$	22.75		$	27.00		$	38.50		$	42.00		$	46.00		$	47.00		$	48.25
8	$	23.75		$	28.25		$	41.00		$	44.75		$	49.25		$	50.25		$	51.25
9	$	24.50		$	29.75		$	43.75		$	47.50		$	52.50		$	53.75		$	54.50
10	$	25.25		$	31.00		$	46.25		$	50.25		$	55.25		$	56.75		$	57.75
11	$	26.25		$	32.50		$	48.75		$	52.75		$	58.00		$	60.00		$	60.75
12	$	27.00		$	33.50		$	51.25		$	55.50		$	60.75		$	63.00		$	63.75
13	$	27.75		$	34.75		$	53.75		$	58.00		$	63.25		$	65.75		$	66.50
14	$	28.50		$	36.00		$	55.75		$	60.50		$	65.75		$	68.50		$	69.25
15	$	29.50		$	37.50		$	58.00		$	63.00		$	68.25		$	70.75		$	72.00

Ground Service Weight	Domestic Zones - Transit Time in Days
	1			2			3			4			5			6			7
1 Lbs.	$	4.75		$	4.90		$	5.25		$	5.35		$	5.65		$	5.70		$	5.85
2	$	4.85		$	5.15		$	5.65		$	5.80		$	6.25		$	6.40		$	6.80
3	$	5.00		$	5.40		$	6.00		$	6.25		$	6.70		$	6.90		$	7.55
4	$	5.15		$	5.60		$	6.30		$	6.60		$	7.10		$	7.30		$	8.05
5	$	5.40		$	5.80		$	6.60		$	6.95		$	7.40		$	7.75		$	8.55
6	$	5.55		$	6.00		$	6.75		$	7.20		$	7.65		$	8.05		$	8.85
7	$	5.75		$	6.15		$	6.90		$	7.45		$	7.95		$	8.35		$	9.25
8	$	6.00		$	6.35		$	7.10		$	7.60		$	8.25		$	8.75		$	9.90
9	$	6.20		$	6.55		$	7.25		$	7.80		$	8.45		$	9.25		$	10.55
10	$	6.40		$	6.70		$	7.40		$	8.00		$	8.80		$	9.90		$	11.25
11	$	6.60		$	6.90		$	7.55		$	8.25		$	9.20		$	10.60		$	12.05
12	$	6.80		$	7.10		$	7.70		$	8.45		$	9.60		$	11.35		$	12.95
13	$	7.00		$	7.35		$	7.85		$	8.65		$	10.05		$	12.05		$	13.80
14	$	7.15		$	7.55		$	8.00		$	8.85		$	10.60		$	12.75		$	14.65
15	$	7.35		$	7.80		$	8.15		$	9.05		$	11.15		$	13.45		$	15.55

a. Calculate the additional shipping and transit inventory cost using the air and ground transportations. (Negative answers should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places.)

Answer 1

As orders are of 3 pounds each, we will use the ground and air transportation costs for 3 pounds as given in the table.

Transit time for air =1, hence inventory holding for each order shall be $5.5 x 1 = $5.5

For ground transportation, transit time varies from 1 to 7. For each destination, daily holding cost depends on number of transit days. Hence for zone 4, inventory costs shall be $5.5 x 4 = $22.

Basis the above , below table is formulated.

Hence the additional shipping and inventory costs between air and ground is $43.95.

As we can see from above table, ground transit is profitable for zones upto zone 6. For Zone 7, it is profitable to ship by air.