Answered: Flanger is an industrial distributor…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Flanger is an industrial distributor that sources from hundreds of suppliers. The two modes of transportation available for inbound shipping are LTL (less than truck- load) and TL (truckload). LTL shipping costs $1 per unit, whereas TL shipping costs $500 per truck. Each truck can carry up to 1,000 units. Flanger wants a rule assigning products to shipping mode (TL or LTL) based on annual demand. Each unit costs $50, and Flanger uses a holding cost of 22 percent. Flanger incurs a fixed cost of $150 for each order placed with a supplier. a. Determine a threshold for annual demand above which TL is preferred and below which LTL is preferred. b. How does the threshold change [relative to part (a)] if unit cost is $150 (instead of $50 ) with all other data unchanged? Which mode becomes preferable as unit cost grows? c. How does the threshold change [relative to part (a)] if the LTL cost comes down to $0.8 per unit (instead of $1 per unit)?

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