The traffic manager of Monarch Electric Company has just received a rate reduction offer from a trucking company for shipment of fractional horse power motors to company's field warehouse. The proposal is a rate of $3 per hundredweight (cwt) if a minimum of 40.000 pounds is moved in each shipment. Currently, shipments of 20.000 pounds or more are moved at a rate of $5 per cwt.
If the shipment size falls below 20.000 pounds with rate of $9 per cwt applies, helps the traffic manager make a decision with following additional information has been gathered:
• Annual demand on warehouse 5.000 motors per year
• Warehouse replenishment orders 43 orders per year
• Weight of each motor, crated 175 lb per motor
• Standard cost of motor in warehouse $200 per motor
• Stock replenishment order handling costs $15 per order
• Inventory carrying costs as a percentage of average value of inventory on hand for a year 25% per year
• Handling cost at warehouse $0.30 per cwt
• Warehouse space Unlimited
Should the company implement the new rate?