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Economic Order Quantity (EOQ) for BBE in Pounds as well as in Units

Discuss about the Baseball Card Emporium.

The case report deals with the case study of Baseball Card Emporium (BBE), a distributor of baseball cards to their dealers of sports card situated in Lewistown at Pennsylvania. In this study, the challenges or issues related to the concerned company have been investigated and solved. The case report also accounts the overall performance of the concerned company along with goals that need to be met by the company in order to maintain the flow of their transactions with their respective dealers of sports card.

In this case report, the key factors to be concentrated on are, the Economic Order Quantity (EOQ) for BBE found both in units as well as pounds; the cost total of EOQ achieved by excluding cost of transportation; the cost aggregate for transportation by motor and air carrier along with the alternatives suitable to be implemented by BBE for their company according to the above.

As indicated by Khan et al. (2011, p.116), an Economic Order Quantity (EOQ) is a type of cost accounting tool designed in order to minimise the carrying and ordering costs of a concerned company. Banerjee et al. (2012, p.37) stated that as the carrying cost is calculated for per unit and the ordering cost by per order, the economic order quantity of any company follows the below-mentioned formula that is,

Economic order quantity = square root of [(2 × demand × ordering costs) ÷ carrying costs].

Therefore, the EOQ of BBE in pounds is calculated accordingly as,

EOQ = square root of [(2 ×6000 ×$75) ÷ 30%] (here, 30% is done on case value)

EOQ = square root of [(2×6000 × $75) ÷ 28.8]

EOQ = = 176.8 units = 177 units

Since, 50 pounds = 1 case,

Therefore, 177 * 50 pounds = 8850 pounds

Therefore, as required, the EOQ for BBE is 8850 pounds and 177 in Units.

The above-mentioned calculations are done based on the information stated by the Baseball Card Emporium. As the company receives an annual demand of 6,000 cases of cards to which 30% of the amount is utilised in transporting the materials, thus the company pays $75 cost for per order. The Economic Order Quantity, states that the demand value is kept constant whereas the inventory cost gets depleted to a fixed rate unless it becomes zero.

Thus there are no associated costs or any shortages as concerned in the above case. The company assumes as per the above calculations that the constant transportation done by the concerned company to its scattered dealers of sports cards have been able to get hold of the exact amount required to be invested is of 8850 pounds for 177 units of demand. As the demand for their customer's increase, the money invested by the company also increases in order to cope up with the needs and so changes the costs of the materials (Wahab et al. 2011, p.151).

Total Cost of EOQ, excluding Transportation Costs

For instance, if the carrying cost may vary depending upon the inventory, thus as required, new warehouses are rented. Through by this EOQ model, the Baseball Cards Emporium structured its total costs invested on the materials, as for their future and long-term business plan. Thus depending upon this, the company will budget price lists for their customers in order to make their business to spread over more and more places and to establish their loyalty and responsibilities towards their customers.

As the carrying cost is calculated for per unit and the ordering cost by per order, the economic order quantity of any company follows the below-mentioned formula that is,

Economic order quantity = square root of [(2 × demand × ordering costs) ÷ carrying costs] (Harker, 2013, p.374). From the above formula, the required Economic Order Quality of Baseball Card Emporium summed to 8850 pounds. By keeping the EOQ in mind, the total cost of EOQ can be summed up by excluding the costs for transportations. Therefore, the equations go as mentioned below:

Total cost Excluding Transportation charges = EOQ - transportation costs.

That is, in this case, the transportation costs are summed as,

Unit weight = 50 lbs per case

Rate of Motor carrier = $1.2 per cwt. (100 lbs) that is, as 1 cwt = 100 lbs

6000 × 50 = 300000 lbs = 3000 cwt.

Rate of Air carrier = $ 2.5, Therefore, the total transportation cost is,

Rate of Motor carrier (1.2 × 3000 cwt) + Rate of Air carrier (2.5 × 3000 cwt) = $11100

Therefore, as required EOQ, excluding the transportation cost sum up to

Total cost Excluding Transportation charges = 177 × 96 + [6000 ÷ 177] × 75 + 177 ÷ 4 × 30% of $96

= 16992 + 2542.5 + 1.54 = $19536.04

= $19536.04 - $11100

= $8436.04

Thus it can be concluded that the total cost of Economic Order Quantity of Baseball Cards Emporium stands up to $8436.04 by excluding all the mentioned transportation costs. The model of EOQ helps an organisation to inspect the suitable factors that tend to attract their customers from miles apart (Brander and Zhang, 2011, p.567). As can be concluded from the above calculations, previously the total Economic Order Quantity of BBE, devoid of any transportation costs summed up to 177. However, from the second calculation of the BBE Company, it can be concluded that the involvement of all the forms of transportations and their respective costs (paid by the company), the total value gets up to $8436.04.

Aggregated Costs for Transportation using Motor Carrier

The differences vary, as there were no transportation costs involved (Lee and Fu, 2014, p.23). . Thus, if the company tries and minimises its transportation amount, it can undoubtedly save more money annually, as mentioned from the above calculation. According to Monczka et al. (2015, p.145), the financial objectives of any company gets affected directly by the network configuration and investments as well by the financial yearly variables that results out of the flow of goods in network as based on Strategic Structure and the Marketing Planning, the two divisions of supply chain of a company.

As concluded from the above-mentioned calculation of Transportation costs in total, the aggregate costs of transportation of the Baseball Cards Emporium, as opined by Moses and Savage (1992, p.482), using Motor carrier can be summed up as,

The total pounds ÷ Cost per order × Motor carrier rate × In- transit inventory carrying cost, therefore,

The cost for Transportation using Motor Carrier = [8850 pounds ÷ ($75 × 1.2)] × 18

 = $1770

In order to stabilise the cost balance of BBE by their Motor carrier transportation, the company should follow the key factors mentioned as, the sources of the data, its functional form, and analysis of the variables employed. Factors like computerised data sources are maintained that are known as the Motor Carrier Management Information System (MCMIS). The data here are comprised of a number of goods that are exported and imported; along with the record for any accidents, any physical characteristics along with any results of the recent safety audit (Ballou et al. 2010, p.7).

As the company spends about $1770 on its transportation specifically through Motor carriers, the distribution director tries to manage company's economic stability along with providing its customers with the required need of products (Oum et al. 2014, p.171). As mentioned, the Baseball Cards Emporium is a sports cards dealer that deals in the areas encompassing the Eastern Ohio, Pennsylvania along with New Jersey. The cards are printed in Wisconsin and Neenah and are transported through motor carriers (Sternberg, 2012, p.47).

Thus from the above calculations, it can be well observed that the amount BBE spends for Motor Carrier is of $1770 and thus the company requires to shape the economic flow according to it. According to Roberts (2012, p.485), transportation is the most important single element that cost logistics for most of the firms, it is very important for business in order to create the place, quality utility, and time to enable larger production scale, increased competition, specialisation in the geographic area and so on.

The director of BBE Company should get structured with the system of transportation by extending business for shipping so that the business can reach more and more customers in order to generate the high level of demand. Through Motor carrier transportation the transactions made accounts, certain amount of money spent on petrol or diesel, that goes in the motor carriers along with the wages a company provides to its worker also increases or decreases along with the increase and decrease in the price of petrol or diesel (Adair and Wison, 2013, p.63).

The Baseball Card Emporium, as from the above-mentioned calculations that focused on firstly, on the total Economic Order Quantity (EOQ); which was followed by the total economic order quantity of BBE Company. It excluded the transportation costs, along with the aggregate cost of transportation by using the motor carriers, provides the company with the exact amount it spends annually in its business service. The next valued that is required to be calculated is the total amount of cost that BBE company spends for its transportation by using air carriers, can be stated by the following calculations,

Total cost for Transportation using Air carrier

= The total pounds ÷ Cost per order × Air carrier rate × In- transit inventory carrying cost,

Therefore,

Cost for Transportation using Air Carrier,

 = [8850 pounds ÷ ($75 × 2.5)] × 18

= $849.6

As from the above-mentioned calculations, it can well analyse, that the amount of transportation cost spent by the BBE company is of $849.6. The transportation of goods that are done through airways or air carriers though seemed to be less time-consuming for any business firm that too if the company has its high competitors in the market.

As mentioned by Stadtler (2015, p.5), every company must have required measurable tools in order to meet their customer's demand, from both high cost-effective ways or by the low-cost effective ways. The above should be followed as because there is no surety of the demands made by their customers that may be in bulk form or can also be in an individual form. It is the responsibility of the company director to cope up with the suitable demands through the suitable way of the required transportations. The company director is required to form an organised structure; including the following details, such as the required structure of the service industry (Teng et al. 2012, p.328).

The service provided by the aviation industry itself provides their customers by transporting them and their belongings from one place to another, similarly a company also provides their customers with required demands related to their needs by the air carriers. It is well stated that the air carriers are more capital intensive, as from one side it devalues the time factor and from the other side it highly values the cost, which sometimes or more often is suffered by the company.

The Economic Order Quantity (EOQ) of a respective company namely, the Baseball Cards Emporium, (BBE) has gone through the above-mentioned calculations, done as per mentioned information. The above analysis and their required calculation are done in order to help the company to decide the transportation medium that proves to be suitable for both the Motor carrier and Air carrier which a company deals with, in order to get their target audiences satisfied on an often basis. The calculations mentioned above includes, the total EOQ of BBE summed up to be as 177 units along with 8850 pounds.

The company further calculates its total Economic Order Quantity; excluding the transportation cost get its result to stand upon $8436.04, whereas $1770 is the required cost paid by BBE in order to make transportations through motor carriers, along with the transaction costs of Air carrier paid by the company that sums up to $849.6.

It can be easily said that all the above transactions made by the Baseball Cards Emporium are done both in and against the economic flow chart of the BBE Company. As through the motor carriers, the company spends fewer amounts to reach its customers, whereas through air carrier the company spends more amounts. Thus, it can be justified from the above-mentioned calculations, that respected Baseball Cards Emporium company should always perform their daily transactions through Motor Vehicles or carriers, as motor carriers are less cost effective than the Air carriers. Though being less cost effective, the company deals with more customers through these motor carriers.

According to Stadtler (2015, p.67) the company can easily provide their customers with door-to-door services in order to attract more and more customers in their favour, whereas, Air carriers at one phase provides their customers with their desired products, though being anywhere around the globe. However, the same utilises much more money from the pocket of their customers that indirectly affects the brand image of the company negatively (Taleizadeh et al. 2015, p.21). Thus, the sole responsibility of the company lies on the shoulders its managing directors, who not only goes for profit making but also concentrates on its image and brand building, all going hand in hand. As suggested by Zigiaris (2000, p.5), a company should follow the path, that is of being neutral through both sides, that is, not being so costly and rather not being so easily available.

Conclusion

As from the above-mentioned calculations, it can well analyse, that the transportation of goods that are done through air carriers can be concluded to be less profitable and more cost effective for the Baseball Cards Emporium company. The case report deals with the support of the motor carriers transportation, that are used by the company so that the company whereas satisfies its customers with the provided demands along with the facilities that are easily available for their customers. The simple fact states that if a company is always available for their customers, it is undoubtedly accepted that the customers would blindly trust that company. Thus being connected through land services, any company will receive the current feedbacks from their customers within a short time span, whereas, if the company keeps on their transaction through the air carriers, there are chances for communication gap between the customers and the company.

References

Adair, J.B. and Wison, J.S.,( 2013). Inventory of Freight Transportation in the
Southwest. Part II: Motor Carrier Service in the Dallas/Fort Worth Area. Council for Advanced Transportation Studies.

Ballou, R.H., Gilbert, S.M. and Mukherjee, A.,( 2010). New managerial challenges from supply chain opportunities. Industrial Marketing Management, 29(1), pp.7-18.

Banerjee, A., Sylla, C. and
Eiamkanchanalai, S., (2012). Input/output lot sizing in single stage batch
production systems under constant demand.Computers & Industrial Engineering, 19(1-4), pp.37-41

Brander, J.A. and Zhang, A., (2011). Market conduct in the airline industry: an empirical investigation. The RAND Journal of Economics, 5(8), pp.567-583.

Harker, P.T., (2013), Freight Transport Planning and Logistics: Proceedings of an International Seminar on Freight Transport Planning and Logistics Held in Bressanone, Italy, July 1987 (Vol. 317, p. 374). Springer Science & Business Media.

Khan, M., Jaber, M.Y. and Bonney, M., (2011). An economic order quantity (EOQ) for items with imperfect quality and inspection errors. International Journal of Production Economics, 133(1), pp.113-118.

Lee, S.D. and Fu, Y.C.,( 2014). Joint production and delivery lot sizing for a make-to-order producer–buyer supply chain with transportation cost.Transportation
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Monczka, R.M., Handfield, R.B., Giunipero, L.C. and Patterson, J.L., (2015). Purchasing and supply chain management. Boston:Cengage Learning.

Moses, L.N. and Savage, I., (1992). The effectiveness of motor carrier safety audits. Accident Analysis & Prevention, 24(5), pp.479-496.

Oum, T.H., Zhang, A. and Zhang, Y., (2014). Inter-firm rivalry and firm-specific price elasticities in deregulated airline markets. Journal of Transport Economics and Policy, pp.171-192.

Roberts, K.W., (2012). Key Factors and Trends in Transportation Mode and Carrier Selection. Knoxville: University of Tennessee

Stadtler, H., (2015).Supply chain management: An overview. In Supply chain management and advanced planning, pp.3-28

Stadtler, H.,(2015). Supply chain management: An overview. In Supply chain management and advanced planning. Springer Berlin Heidelberg.

Sternberg, H., Stefansson, G., Westernberg, E., Boije af Gennäs, R., Allenström, E. and Linger Nauska, M., (2012). Applying a lean approach to identify waste in motor carrier operations. International Journal of Productivity and Performance Management, 62(1), pp.47-65.

Taleizadeh, A.A., Stojkovska, I. and Pentico, D.W., (2015). An economic order quantity model with partial backordering and incremental discount.Computers & Industrial Engineering, 82, pp.21-32.

Teng, J.T., Min, J.and Pan, Q.,(2012). Economic order quantity model with trade credit financing for non-decreasing demand. Omega, 40(3), pp.328-335.

Wahab, M.I.M.,Mamun, S.M.H. and Ongkunaruk, P.,( 2011). EOQ models for a coordinated two-level international supply chain considering imperfect items and environmental impact. International Journal of Production Economics, 134(1), pp.151-158.

Zigiaris, S., (2000) Supply Chain Management, INNOREGIO: dissemination of innovation and knowledge management techniques, pp.2-26

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