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Suppose Jones Company has orders from three customers located in the same market area
Suppose Jones Company has orders from three customers located in the same market area. One order has a total weight of 4,300 pounds, the second weighs 9,000 pounds, and the third weighs 12,800 pounds. The transportation carrier quotes a freight rate of $18 per hundredweight (or cwt.) for direct shipment to the customer for shipments weighing 1,000 to 4,999 pounds, $16 per cwt. for orders weighing 5,000 to 9,999 pounds, and $14 for shipments weighing between 10,000 and 15,000 pounds. Alternatively, the carrier?s rate for shipments weighing more than 20,000 pounds is $10.00 per cwt. However, if the orders are combined into one consolidated shipment, the carrier will charge $330 for each stop it is required to make.
a. Calculate the total cost with or without consolidated shipment charge.
b. Should Jones consolidate the three shipments?
- No
- Yes
Expert Solution
a. The total weight of order is 4,300 pounds and this lies in the bracket of 1,000 to 4,999 pounds and therefore the cost of shipment charged on this order will be $18. Therefore, the cost of transportation (C1) of this order will be:
C1=4300×18100=$774C1=4300×18100=$774
The total weight of second order is 9,000 pounds and this lies in the bracket of 5,000 to 9,999 pounds and therefore the cost of shipment charged on this order will be $16. Therefore, the cost of transportation (C2) of this order will be:
C2=9000×16100=$1440C2=9000×16100=$1440
The total weight of third order is 12,800 pounds and this lies in the bracket of 10,000 and 15,000 pounds and therefore the cost of shipment charged on this order will be $14. Therefore, the cost of transportation (C3) of this order will be:
C3=12800×14100=$1792C3=12800×14100=$1792
Therefore total cost of separate shipment (CS) will be:
CS=774+1440+1792=$4006CS=774+1440+1792=$4006
Total cost of separate shipment is $4006.
If all weights are shipped in one shipment, then total charges (TCH) will be:
TCH=(4300+9000+12800)×10100=$2610TCH=(4300+9000+12800)×10100=$2610
Also, they will charge $330 for each drop and there are total three drops. Therefore total charges of drop will be $990.
Therefore, total cost (TC) will be:
TC=$2610+$990=$3600TC=$2610+$990=$3600
Total cost of combined shipment is $3600.
b. Yes. Jones should consolidate the three shipment because consolidation will lead to the lowest cost of shipment.
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