Ibanez, Maria Elisa Panther ID #1289184
November 20, 2014
Case 2.1: Senco Electronics Company
1. If you were Skip Grenoble, which alternative would you advise Jim Beierlein to implement? What criteria would you use to arrive at your decision?
If I were Skip Grenoble, an alternative I would advise Jim Beierlein to implement is to use air transportation initially then switch to ocean transportation once they have reached their profit and service goals. This strategy will allow the flexibility they need at the beginning when they are getting a feel for the market and if their projected annual demand holds true.
2. At what level of demand (in pounds) per year would these two alternatives be equal?
Variable Cost=Total Cost-Fixed Cost=$823,000-$600,000=$223,000
Variable Cost/Units=$223,000/2.5 million lbs.=$0.0892/lb.
$600,000+$0.0892x (x=demand in lbs.)
Variable Cost=Total Cost-Fixed Cost=$800,000-$450,000=$350,000
Variable Cost/Units=$350,000/2.5 million lbs.=$0.14/lb.
$450,000+$0.14x (x = demand in lbs.)
Ocean transportation cost equals air transportation cost when the demand is 2,952,756 lbs.
3. Graphically represent these two alternatives and their tradeoff point.
4. Which alternative would you recommend be in place to accommodate future demand growth? What additional factors should be considered?
If the initial choice of transportation is air, I would recommend that an ocean freight company is lined up for the future when the demand grows. This is due to the fact that in the long run it would be much cheaper to have all merchandise transported by ocean versus air. Additional