The in-transit carrying cost is of inventory

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Reference no: EM13842736

A company located in Hartford, Connecticut, has agreed to purchase an item from a manufacturer in Vancouver, Canada. The purchasing agent in Hartford has identified 2 methods of shipping the item: truck or cargo ship. If the item is shipped by truck, it will take 14 days at a cost of $3 per unit to cross the continent and clear customs. A cargo ship will take 45 days through the Panama canal. But the transportation cost will only be $1.50 per unit. The company expect to buy 2000 units per year at a cost of $150 per unit. The in-transit carrying cost is of inventory is estimated to be 20% per year. Which mode of transport should agent select?

# OF DAYS IN TRANSIT: FOR MODE 1 (TRUCK) 14 DAYS FOR MODE 2(SHIP) 45 DAYS

Transportation cost per unit: FOR MODE 1 (TRUCK) $3.00 FOR MODE 2(SHIP) $1.50

In transit carrying cost 20% per year

Annual demand 2000 units

Unit cost $1,500

Reference no: EM13842736

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