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Richard’s Sporting Goods needs to fill an online order for 182 hockey sticks. The manager is...

Richard’s Sporting Goods needs to fill an online order for 182 hockey sticks. The manager is considering shipping the order by truck to the customer in Wisconsin, at a carrier charge of $95. The delivery will take ten days and the order is paid on delivery (Richard’s doesn’t get paid until the sticks are received). The hockey sticks are valued at $75 for each stick and Richard’s uses a 24 percent annual inventory carrying charge.

a. Use the formula Total Cost = in-transit holding cost + freight cost. Note: the term "transit inventory cost" is used interchangeably with "in-transit holding cost". What will be the total cost of the shipment?

Transit inventory cost   
Total cost
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Answer #1

Freight cost or shipment cost = 182 hockey sticks * $75 per stick = $13,650

Transit inventory cost = Carrier charge + (Shipment cost * Inventory cost) = $95 + ($13,650 * 24% annual * (10/365)) = $184.75

Total cost = In-transit holding cost + freight cost = $184.75 + $13,650 = $13,834.75


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