Explain decision making on implementing the new rate

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Reference no: EM1317235

Explain Decision making on implementing the new rate

1. Suppose that a manufacturer of men\'s shirts can produce a dress shirt I its Houston Texas plant for 8 dlls per shirt (including the cost of raw materials). Chicago is a major market for 100,000 shirts per year. The shirt is priced at 15dlls at the Houston plant. Transportation and storage charges from Houston to Chicago amount to 5dlls. Per hundred weight (CWT). Each packaged shirt weighs 1 pound. As an alternative, the company can have the shirts produced in Taiwan for 4 dlls per shirt (including the cost of raw materials). The raw materials, weighing about 1 pound per shirt would be shipped from Houston plant to Taiwan at a cost of 2dlls. Per CWT. When the shirts are completed they are to be shipped directly to Chicago at transportation and storage cost of 6dlls CWT. An important duty of o.50c per shirt is assessed.
From a logistics production cost standpoint, should the shirts be produced in Taiwan and what additional considerations other than economics might be considered before making a final decision?

2. 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 dlls per hundred weight (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 dlls per CWT. If the shipment size falls below 20000 pounds a rate of 9dlls per cwt applies.

To help the traffic manager make a decision, the following information has been gathered.

Annual demand on warehouse 5,000 motors a year

Warehouse replenishment orders 43 orders a year

Weight of each motor, crated 175lb per motor

Standard cost of motor in warehouse $200 per motor

Stock replenishment order handling cost $15 per order

Inventory carrying cost as percentage of average value of inventory of hand for a year 25% per year

Handling cost at warehouse .30c CWT

Warehouse space unlimited

Should the company implement the new rate?

Reference no: EM1317235

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