Problem:
An appliance manufacturer has a plant near Toronto that receives small electric motors from a manufacturer located in Winnipeg. The demand for motors is 120,000 units per year. The cost of each motor is $120. The motors are purchased in lots of 3,000 units. The supplier has these motors in stock and usually ships them the next day. The ownership of motors transfers to the appliance manufacturer in Winnipeg. The question is which mode of transportation, truck or train, the appliance manufacturer should use to bring the motors from Winnipeg to Toronto. The railroad company changes $0.65 per motors (based on its weight) as long as there are at least 2,000 motors in the rail car, and it takes four days by train. The trucking company charges $0.75 per motor (based on weight) for lots of at least 1,000 motors, and it takes only two days. If the carring cost rate is 25 percent of unit cost per year, and the appliance manufacturer transports 3,000 motors at a time, which mode of transportation will minimize total transportation and carrying costs?