The total cost EOQ BBE

Case 9.2. Baseball Card Emporium
Baseball Card Emporium (BBE) of Lewistown, Pennsylvania, is a distributor of baseball cards to sports card retailers. Its market area encompasses most of Pennsylvania, eastern Ohio, and New Jersey. The cards are printed in Neenah, Wisconsin, and currently shipped to Lewistown via motor carrier transportation. Kenny Craig, vice president of logistics, has asked his staff to evaluate using air carrier service to ship the cards.
Nick Gingher, director of distribution, has collected the following information:
• Annual demand: 6,000 cases of cards
• Case value (price): $96 each
• Inventory carrying cost (annual): 30%
• Cost per order to replenish inventory: $75
• In-transit inventory carrying cost: 18%
• Transit time using motor carrier (parcel ground): 4 days
• Cycle time using motor carrier (parcel ground): 7 days
• Transit time using air carrier: 1 day
• Cycle time using air carrier:2 days
• Motor carrier rate: $1.20 per cwt. (100 lbs.)
• Air carrier rate: $2.50 per cwt.
• Unit weight: 50 lbs. per case

1. Based on the data provided in Case 9.2, calculate the total cost EOQ BBE ($).
2. Based on the data provided in Case 9.2, calculate the EOQ BBE (in pounds).
3. What is the total cost of using motor transportation?

Sample Answer

To calculate the total cost EOQ (Economic Order Quantity) for BBE, we need to consider the following costs:
a. Ordering Cost:

Cost per order to replenish inventory: $75
Annual demand: 6,000 cases of cards
EOQ formula: EOQ = sqrt[(2 * annual demand * ordering cost) / carrying cost per unit]
EOQ = sqrt[(2 * 6,000 * $75) / ($96 * 0.30)]
EOQ ≈ 351.64 (rounded to 352)
b. Carrying Cost:

Case value (price): $96 each
Inventory carrying cost (annual): 30%
Carrying cost per unit = case value * carrying cost
Carrying cost per unit = $96 * 0.30 = $28.80
c. In-Transit Inventory Carrying Cost:

In-transit inventory carrying cost: 18%
Unit weight: 50 lbs. per case
In-transit carrying cost per pound = carrying cost per unit * in-transit inventory carrying cost
In-transit carrying cost per pound = $28.80 * 0.18 = $5.18
d. Transit Time and Cycle Time Costs:

Transit time using motor carrier (parcel ground): 4 days
Cycle time using motor carrier (parcel ground): 7 days
Transit time using air carrier: 1 day
Cycle time using air carrier: 2 days
With this information, we can calculate the total cost EOQ for BBE:

Total Cost EOQ = (EOQ * case value) + (EOQ * carrying cost per unit) + (EOQ * unit weight * in-transit carrying cost per pound) + ((cycle time – transit time) * case value * carrying cost per unit)

Total Cost EOQ = (352 * $96) + (352 * $28.80) + (352 * 50 * $5.18) + ((7 – 4) * $96 * $28.80)

Total Cost EOQ ≈ $33,792

To calculate the EOQ BBE in pounds, we need to multiply the EOQ by the unit weight:
EOQ BBE (in pounds) = EOQ * unit weight

EOQ BBE (in pounds) = 352 * 50

EOQ BBE (in pounds) = 17,600 pounds

The total cost of using motor transportation can be calculated by multiplying the motor carrier rate by the weight of the shipment:
Total Cost of using motor transportation = motor carrier rate * weight of shipment

Weight of shipment = EOQ BBE (in pounds) = 17,600 pounds

Total Cost of using motor transportation = $1.20 per cwt. * (17,600 pounds / 100)

Total Cost of using motor transportation = $211.20

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