Scenario 14.1 - Vidalia Onions
When Vidalia onions are ready,the entire 13 county (plus parts of seven other counties)area in Georgia where they are grown is devoted to the harvest,packaging and shipping of this delicacy.The Onion Shack currently purchases 120,000 bags of onions each year at a price of $100 per bag (a bag is ten pounds).Onion Shack has historically purchased in lots of 3000 bags.Transit time and capacity vary as indicated in the table.The safety inventory that Onion Shack requires is 30% of lead time demand and the holding cost for a bag is 15% of cost.
$$\begin{array} { | l | c | c | c | c | }
\hline \text { Carrier } & \begin{array} { c }
\text { Quantity } \
\text { Shipped (cwt) }
\end{array} & \begin{array} { c }
\text { Quantity shipped } \
\text { (bags) }
\end{array} & \begin{array} { c }
\text { Shipping cost } \
\text { (\$/cwt) }
\end{array} & \begin{array} { c }
\text { Transit time } \
\text { (days) }
\end{array} \
\hline \text { Mashburn Rail } & 200 + & 2000 + & \$ 2.10 & 5 \
\hline \text { Sylvia Express } & 100 + & 1000 + & \$ 2.35 & 3 \
\hline \text { Anita Enterprises } & 250 + & 2500 + & \$ 1.35 & 3 \
\hline \text { Smith Trucking } & 250 + & 2500 + & \$ 1.00 & 3 \
\hline
\end{array}$$
-Use Scenario 14.1 to determine the in-transit inventory cost of the Anita Enterprises option if the Onion Shack purchases 240,000 bags of Vidalia onions each year.

Question

Scenario 14.1 - Vidalia Onions
When Vidalia onions are ready,the entire 13 county (plus parts of seven other counties)area in Georgia where they are grown is devoted to the harvest,packaging and shipping of this delicacy.The Onion Shack currently purchases 120,000 bags of onions each year at a price of $100 per bag (a bag is ten pounds).Onion Shack has historically purchased in lots of 3000 bags.Transit time and capacity vary as indicated in the table.The safety inventory that Onion Shack requires is 30% of lead time demand and the holding cost for a bag is 15% of cost.
 $$\begin{array} { | l | c | c | c | c | } 
\hline \text { Carrier } & \begin{array} { c } 
\text { Quantity } \
\text { Shipped (cwt) }
\end{array} & \begin{array} { c } 
\text { Quantity shipped } \
\text { (bags) }
\end{array} & \begin{array} { c } 
\text { Shipping cost } \
\text { (\$/cwt) }
\end{array} & \begin{array} { c } 
\text { Transit time } \
\text { (days) }
\end{array} \
\hline \text { Mashburn Rail } & 200 + & 2000 + & \$ 2.10 & 5 \
\hline \text { Sylvia Express } & 100 + & 1000 + & \$ 2.35 & 3 \
\hline \text { Anita Enterprises } & 250 + & 2500 + & \$ 1.35 & 3 \
\hline \text { Smith Trucking } & 250 + & 2500 + & \$ 1.00 & 3 \
\hline
\end{array}$$
-Use Scenario 14.1 to determine the in-transit inventory cost of the Anita Enterprises option if the Onion Shack purchases 240,000 bags of Vidalia onions each year.

Quizplus · Accepted Answer

The in-transit inventory cost can be calculated using the formula: $$ \text{In-transit inventory cost} = \frac{\text{Annual demand} \times \text{Transit time}}{365} \times \text{Cost per unit} \times \text{Holding cost rate} $$ Given that the Onion Shack purchases 240,000 bags of onions per year, the transit time for Anita Enterprises is 3 days, the cost per bag is $100, and the holding cost rate is 15%, the calculation is: $$ \text{In-transit inventory cost} = \frac{240,000 \times 3}{365} \times 100 \times 0.15 = \$2,972.60 $$

Scenario 14 -Use Scenario 14