"The XYZ Chemical Company must ship 9,500 gallons of pesticides..." (REST OF QUESTION IS IN DETAILS! :))?

The XYZ Chemical Company must ship 9,500 gallons of pesticides from its plant in Cincinnati, Ohio, to a customer in Columbia, Missouri. XYZ has a contract in place with Henderson Bulk Trucking Company as well as with the Central States Railroad. Both carriers are available for the move. Henderson will charge $600 per tank truck, and Central States’ rate is $1,000 per rail tank car for transport. Henderson trucks can hold a maximum quantity of 7,000 gallons. XYZ has a fleet of 23,500 gallon rail tank cars available in Cincinnati.

a. Given the above information, evaluate the cost of each alternative and determine which mode will provide the lowest unit cost.

b. What other qualitative factors should be considered in this decision?

2 Answers

  • JetDoc
    Lv 7
    3 years ago

    Obviously, if it costs $600 each for TWO trucks, and $1,000 for only ONE tanker car, the railroad wins, BUT... Does the customer in Missouri have a railroad siding where the tanker car can be offloaded directly to their storage facility? If not, then you'll STILL have to hire trucks to offload the liquid from the rail site and transport it to the final destination.

  • 3 years ago

    By road you would need two trucks to haul 9,500gal - total cost $1,200. By rail you only need one rail car = $1,000

    However by rail you still need to allow for transferring the pesticide from the plant to the rail yard, as well as decanting it into another tanker at the other end for local delivery, which not only involves triple handling the product (a potentially dangerous chemical) but also carries additional unspecified local transport costs.

    By road, the two tankers have a total 14,000gallon capacity which is only being two-thirds utilised. The sales department should attempt to persuade the customer to up their order to 14,000gallons (2 full tankers worth) as there is no additional road freight cost, so they would effectively get a lower unit price delivered into store for that quantity.

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