Stock replenishment order handling costs 15 per order., Ask an Expert

Management Studies

The traffic manager of Monarch Electric Company has just received a rate reduction offer from a trucking company for shipment of fractional horse power motors to company's field warehouse. The proposal is a rate of $3 per hundredweight (cwt) if a minimum of 40.000 pounds is moved in each shipment. Currently, shipments of 20.000 pounds or more are moved at a rate of $5 per cwt.

If the shipment size falls below 20.000 pounds with rate of $9 per cwt applies, helps the traffic manager make a decision with following additional information has been gathered:

• Annual demand on warehouse 5.000 motors per year

• Warehouse replenishment orders 43 orders per year

• Weight of each motor, crated 175 lb per motor

• Standard cost of motor in warehouse $200 per motor

• Stock replenishment order handling costs $15 per order

• Inventory carrying costs as a percentage of average value of inventory on hand for a year 25% per year

• Handling cost at warehouse $0.30 per cwt

• Warehouse space Unlimited

Should the company implement the new rate?

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M957936

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