Tender Most Brand

With respect to the Tender Most brand, management wishes to evaluate alternative modes of transportation. Two alternatives are available: (1) the company could stop the use of freezer cars for delivery to Butte, Montana, and use company-owned private trucks; or (2) the company could bypass the railroad and use an air carrier service that would pick up the cases in Kentucky and deliver them directly to the retail outlets. It has been decided that if any changeover is economical for the company and the new system (if at all) works well for Tender Most in 2021, in subsequent years, similar feasibility exercises could be carried out for Golden Best.

This reevaluation of transportation modes was triggered by an offer from a new small aircraft company providing cargo shipping at very attractive rates: $ 6 for the first 6 pounds per case for a guaranteed two-day delivery service anywhere in the continental United States, after 6 pounds, each extra pound per case is to be billed at the rate of 0.3 dollar per pound per case. The company-owned truck is expected to cost $1,200 per trip and has a maximum capacity of 1,800 cases of Tender Most. Each trip is expected to take no more than 3 days. Since the shipments from the distribution center to the retail outlets are relatively small, is has been recognized that even if the firm chooses the company-owned truck option, the delivery to retailers would still involve the use of commercial trucks. Additional Information:

Q*= 2,100 Cases Annual Demand (D) = 119,000 cases Daily Demand (d) =346 cases Short Haul LTL Rate = $14/ Cwt Rail Long Haul CTL Rate = $12/ Cwt Lead Time Rail (LT) =7 days Pack Size/case = 30 lbs

Find the annual transportation cost the Rail CTL (Long haul)

Find the annual transportation cost the LTL (short haul) only