Question

# An appliance manufacturer has a plant near Toronto that receives small

electric motors from a manufacturer located in Winnipeg. The demand for motors is 125,000 units per year. The cost of each motor is \$112. The motors are purchased in lots of 2,600 units. The ownership of motors transfers to the appliance manufacturer in Winnipeg. The company has always used truck as their mode of transportation. The VP has asked procurement to price out the cost of using a train to bring the motors from Winnipeg to Toronto. The railroad company charges \$4.2 per motor, and it takes approximately 6 days by train. The appliance manufacturer will keep 3,677 units as safety stock if a train is used for transportation. Assume 365 days per year and a holding cost rate of 31 percent of unit cost per year. Show all of your work and then compare the transport price by train to the standard cost to transport by truck of \$690,000 and make a recommendation. Hint: The value of a motor in Toronto for calculating the safety stock holding cost is \$112 plus cost of freight per unit.
Input the dollar amount as the answer to this question.