Which mode becomes preferable as unit cost grows

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Reference no: EM131781273

Flanger is an industrial distributor that sources from hundreds of suppliers. The two modes of transportation available for inbound shipping are LTL (less than truckload) and TL (truck load). LTL shipping costs $1 per unit, whereas TL shipping costs $400 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 20 percent. Flanger incurs a fixed cost of $100for 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 $100(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 $ per unit)?

Reference no: EM131781273

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