Cost to hold average inventory and cost to hold safety stock

Assignment Help Operation Management

Reference no: EM132262310

1. The following information will be used for this question AND the two questions that follow.

A mass manufacturer of diamond rings produces 365,000 rings per year. Throughout the year, these rings are shipped to a central warehouse that then supplies individual retail stores. The mass manufacturer is exploring two different trucking carriers for transport from the manufacturer to the central warehouse. The mass manufacturer needs to consider three costs: (1) cost to transport, (2) cost to hold average inventory for the year, and (3) cost to hold safety stock that is enough to cover the lead time of the trucking carrier. The mass manufacturer has already determined that, based on cost structure, BOTH carriers would lead to the same TRANSPORTATION cost. Therefore, the carrier that is cheaper is dependent on the cost to hold average inventory and safety stock. The company knows that the holding cost per ring (unit) per year is $100. The following is relevant information regarding each truck carrier.

Trucking carrier 1: 50,000 rings loaded/truck; 2 day lead time

Trucking carrier 2: 40,000 rings loaded/truck; 6 day lead time

What would be the inventory holding cost for carrier 1 (include cost to hold average inventory and cost to hold safety stock over the lead time).

A. $2,700,000

B. $39,000,000

C. $2,500,000

D. $36,700,000

2.To answer this question, refer to the text in the previous question (regarding the two trucking carriers shipping rings).

What would be the inventory holding cost for carrier 2 (include cost to hold average inventory and cost to hold safety stock)?

A. $38,500,000

B. $600,000

C. $2,600,000

D. $2,000,000

3. To answer this question, refer to the text from two questions prior (regarding the two trucking carriers shipping rings).

Which carrier provides the lowest cost for the company?

A. Carrier 1

B. Carrier 2

C. unable to determine

Reference no: EM132262310

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