Universidad Internacional Del Ecuador

Logistics and International Distribution

UNIT 2: TOTAL COST ANALYSIS TO DETERINE S!I"ENT RATE
The traffic manager of the Monarch Electric Company has just received a
rate reduction offer from a trucking company for the shipment of
fractional horsepower motors to the company's field warehouse. The
proposal is a rate of $3 per hundredweight cwt! if a minimum of "#$###
pounds is moved in each shipment. Currently$ shipments of %#$### pounds
or more are moved at a rate of $& per cwt. 'f the shipment si(e falls
)elow %#$### pounds$ a rate of $* per cwt. applies.
To help the traffic manager make a decision$ the following additional
information has )een gathered+
,nnual demand on warehouse &$### motors per year
-arehouse replenishment orders "3 orders per year
-eight of each motor$ crated ./& l). per motor
0tandard cost of motor in warehouse $%## per motor
0tock replenishment order1handling costs $.& per order
'nventory carrying costs as a %&2 per year
percentage of average value of
inventory on hand for a year
3andling cost at warehouse $#.3# per cwt.
-arehouse space 4nlimited
0hould the company put the new rate to use5