Total transportation and in-transit and safety holding cost

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Reference no: EM131030257

An appliance manufactuer has a plant near Toronto that receives small electric motors from a manufacturer located in Winnipeg. The demand for the motors is 120,000 units per year. The cost of each motor is $120. The motors are purchased in lots of 3,000 nits. The ownership of motor transfers to the appliance manufactuer in Winnipeg. The question is which mode of transportation, truck or train, the appliance manufactuer should use to bring the motors from Winnipeg to Toronto. The railroad company charges $2 per motor, and it takes approximately seven days by train. The trucking company charges $4 per motor, but it takes only three days. The appliance manufacturer will keep 1,000 units as safety stock if a truck is used and 3,000 units as safety stock if a train is used for transportation. If the holding cost rate is 25 percent of unit cost per uear, which mode of transportation will minimize total transportation and in-transit and safety holding cost?

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Reference no: EM131030257

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