1. The Cord Company, a Miami, Ohio, manufacturing firm, has a blanket contract to supply a special power unit for electric windows on a luxury car. The remaining requirements by month for the next model year are as follows:

Cord must pay the freight to Detroit. The car company has said it must have each month’s requirements on hand at the start of each month but it prefers to have no more. If more power units are delivered than are required in a month, Cord is charged $1 per unit per month storage. Cord has completed the production of all current model power units and has 450 of them in inventory for this contract. Assume that the relevant costs only relate to transportation to the customer and the carrying cost charged by the customer for inventory carried on its site.

a. The truck firm that Cord currently uses can deliver overnight and offers a transportation rate break at 1,000 units. The current landed cost at Detroit is $21.10/unit, and for shipments of 1,000 units and more, the landed cost is $20.00 per unit. How should Cord ship to minimize costs for the last six months?

b. A competing truck firm has offered to deliver the power units to Detroit for the same rates but with the break point reduced to 200 units (i.e., for shipments of 200 units or more, the landed cost will be $20.00 per unit). What shipping schedules and truck firm should the company use?

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