Tender Most sells smoked turkeys in the U.S. through a network of 650 company owned retail outlets.

Tender Most sells smoked turkeys in the U.S. through a network of 650 company owned retail outlets. In 2014, sales of Tender Most Turkeys were $4,350,000. Sales are expected to remain steady during 2015. Turkeys are sold at $4 per pound to the retailers. Turkeys are purchased from a supplier FOB origin and sold to retailers FOB destination. Approximately 40% of sales revenue is direct variable cost and 60% of the direct variable costs are actual turkey costs. Shelf life for the turkeys is 14 days if refrigerated and 7 days without refrigeration. Currently, Tender Most uses economic order quantity to purchase turkeys from the supplier and uses rail to bring product into its distribution facility and truck to deliver to the retailers. It takes approximately 8 days to deliver turkeys to the supplierA????1s factory and another 2 days to deliver them to retail outlets. The turkey is shipped in packs of 25 pounds. Inventory carrying cost is 21% per year and in-transit carrying cost is 18% per year. Order processing costs are estimated at $20 per order. Inbound transportation via rail is $8 per hundred pounds. Outbound transportation via commercial truck is $10 per hundred pounds.

The company wanted to investigate an alternate mode of transportation, air-carrier service. This service will bypass the distribution facility and use an air-carrier service to deliver product directly from the supplier to the retail outlets.

Costs for this alternatives are:

Air–$10.50 for the first 10 pounds and $0.50 per pound for all weight over 10 pounds. Guarantee delivery anywhere in the U.S. in 2 days.

Determine how Tender Most should order and ship its product by doing the following.

1. Compute EOQ, in cases for 2015.

2. Determine total annual logistics costs associated with current shipping practices by rail and commercial truck.

i. Safety stock is 550 cases

ii. 360 working days per year

iii. Annual costs consists of ICC, OC, ITCC, inbound transportation, outbound transportation.

iv. Per unit value of turkey should be determined based on sales to retailers.

3. What will total annual logistics costs be if the company uses the air carrier option? (Note: Calculations should recognize the affect this decision has on EOQ, safety stock, average inventory, and in-transit inventory.)