Weight (lb) Cost (Overnight) Cost (3-Day)
2 $16.00 $2.90
3 $18.25 $3.50
4 $19.50 $3.98
The table above lists shipping rates for DSL (overnight delivery) versus “snail mail” (three-day delivery) for sending a package from Saskatoon Saskatchewan, to Montreal Quebec. Assume that inventory carrying cost is 25 percent per year of the product value and that there are 365 days per year. Calculate the break-even value of the product shipped in each case in order to use DSL instead of “snail mail”. Presume that you get paid as soon as the product arrives at its destination.
I need help... Thanks...
To calculate the break-even value of the product shipped in each case in order to use DSL instead of "snail mail", we need to compare the costs of both shipping options and consider the inventory carrying cost.
For DSL (overnight delivery), the cost is listed as "Cost (Overnight)" in the table.
For "snail mail" (three-day delivery), the cost is listed as "Cost (3-Day)" in the table.
Let's assume that the product value is represented by the variable P.
The inventory carrying cost is given as 25% per year of the product value. To convert this to a daily cost, we divide it by 365 (number of days in a year):
Inventory carrying cost per day = (25% / 100%) * P / 365
Now let's calculate the break-even value for DSL compared to "snail mail".
Break-even point for DSL = Break-even point for "snail mail" + Inventory carrying cost per day
For each weight listed in the table, we can calculate the break-even value as follows:
1. For 2 lbs:
Break-even point for "snail mail" = Cost (3-Day) * 2
Break-even point for DSL = Break-even point for "snail mail" + Inventory carrying cost per day
2. For 3 lbs:
Break-even point for "snail mail" = Cost (3-Day) * 3
Break-even point for DSL = Break-even point for "snail mail" + Inventory carrying cost per day
3. For 4 lbs:
Break-even point for "snail mail" = Cost (3-Day) * 4
Break-even point for DSL = Break-even point for "snail mail" + Inventory carrying cost per day
Note: We assume that the product value stays the same for all weights.
By calculating the break-even point for each weight, we can determine the minimum value of the product where using DSL becomes cheaper than using "snail mail".