Problem 11-8 (Algo)rev

The table below provides shipping rates for packages using UPS next day air or ground service options. The rates vary according to both the weight of the package and the distance of the shipment (larger numbered zones are farther away). Note that the zone number also indicates the number of days required to deliver a package using ground service. For example, it would take three days and cost $7.40 to send a 10-pound package to zone 3 using ground service.

	Table of Shipping Rates
Next Day Service Weight	Overnight shipping rates - Domestic Zones
	1			2			3			4			5			6			7
1 Lbs.	$	16.25		$	19.25		$	22.75		$	24.75		$	27.00		$	28.25		$	29.00
2	$	17.25		$	20.75		$	25.50		$	27.75		$	30.25		$	31.25		$	32.00
3	$	19.00		$	21.75		$	28.25		$	30.50		$	33.50		$	34.75		$	35.50
4	$	20.00		$	22.75		$	31.00		$	33.50		$	36.50		$	37.75		$	38.50
5	$	21.25		$	24.25		$	33.50		$	36.25		$	39.50		$	40.75		$	41.75
6	$	22.00		$	25.25		$	36.00		$	39.00		$	42.75		$	44.00		$	45.00
7	$	22.75		$	27.00		$	38.50		$	42.00		$	46.00		$	47.00		$	48.25
8	$	23.75		$	28.25		$	41.00		$	44.75		$	49.25		$	50.25		$	51.25
9	$	24.50		$	29.75		$	43.75		$	47.50		$	52.50		$	53.75		$	54.50
10	$	25.25		$	31.00		$	46.25		$	50.25		$	55.25		$	56.75		$	57.75
11	$	26.25		$	32.50		$	48.75		$	52.75		$	58.00		$	60.00		$	60.75
12	$	27.00		$	33.50		$	51.25		$	55.50		$	60.75		$	63.00		$	63.75
13	$	27.75		$	34.75		$	53.75		$	58.00		$	63.25		$	65.75		$	66.50
14	$	28.50		$	36.00		$	55.75		$	60.50		$	65.75		$	68.50		$	69.25
15	$	29.50		$	37.50		$	58.00		$	63.00		$	68.25		$	70.75		$	72.00

Ground Service Weight	Domestic Zones - Transit Time in Days
	1			2			3			4			5			6			7
1 Lbs.	$	4.75		$	4.90		$	5.25		$	5.35		$	5.65		$	5.70		$	5.85
2	$	4.85		$	5.15		$	5.65		$	5.80		$	6.25		$	6.40		$	6.80
3	$	5.00		$	5.40		$	6.00		$	6.25		$	6.70		$	6.90		$	7.55
4	$	5.15		$	5.60		$	6.30		$	6.60		$	7.10		$	7.30		$	8.05
5	$	5.40		$	5.80		$	6.60		$	6.95		$	7.40		$	7.75		$	8.55
6	$	5.55		$	6.00		$	6.75		$	7.20		$	7.65		$	8.05		$	8.85
7	$	5.75		$	6.15		$	6.90		$	7.45		$	7.95		$	8.35		$	9.25
8	$	6.00		$	6.35		$	7.10		$	7.60		$	8.25		$	8.75		$	9.90
9	$	6.20		$	6.55		$	7.25		$	7.80		$	8.45		$	9.25		$	10.55
10	$	6.40		$	6.70		$	7.40		$	8.00		$	8.80		$	9.90		$	11.25
11	$	6.60		$	6.90		$	7.55		$	8.25		$	9.20		$	10.60		$	12.05
12	$	6.80		$	7.10		$	7.70		$	8.45		$	9.60		$	11.35		$	12.95
13	$	7.00		$	7.35		$	7.85		$	8.65		$	10.05		$	12.05		$	13.80
14	$	7.15		$	7.55		$	8.00		$	8.85		$	10.60		$	12.75		$	14.65
15	$	7.35		$	7.80		$	8.15		$	9.05		$	11.15		$	13.45		$	15.55

Suppose you have a package weighing 2 pounds that needs to be shipped to zone 2. The value of the material is $9,500 and the annual inventory holding rate is 40 percent of the product value.

a. Calculate the total shipping and transit inventory cost using the air and ground transportations. (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. Which transportation mode (air or ground) minimizes the total shipping and transit inventory cost? (Round your answer to 2 decimal places.)

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