Eastern Electric (EE) is a major appliance manufacturer with a large plant in the Chicago area. EE purchases all the motors for its appliances from Westview Motors, located near Dallas. EE currently...

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Extracted text: Eastern Electric (EE) is a major appliance manufacturer with a large plant in the Chicago area. EE purchases all the motors for its appliances from Westview Motors, located near Dallas. EE currently purchases 120,000 motors each year from Westview at a price of $120 per motor. Demand has been relatively constant for several years and is expected to stay that way. Each motor averages about 10 pounds in weight, and EE has traditionally purchased lots of 3,000 motors. Westview ships each EE order within a day of receiving it (lead time is one day more than transit time). At its assembly plant, EE carries a safety inventory equal to 50 percent of the average demand for motors during the delivery lead time. The plant manager at EE has received several proposals for transportation and must decide on the one to accept. The details of various proposals are provided in Table 14-4, where one cwt is equal to a hundred pounds. Golden's pricing represents a marginal unit quantity discount. Golden's representative has proposed lowering the marginal rate for the quantity over 250 cwt in a shipment from $4/cwt to $3/cwt and suggested that EE increase its batch size to 4,000 motors to take advantage of the lower transportation cost. What should the plant manager do? Table 14-4 Transportation Proposals for EE Electric Range of Quantity Shipped (cwt) Shipping Cost (S/cwt) Carrier AM Railroad 200+ 6.50 Northeast Trucking 100+ 7.50 Golden Freightways Golden Freightways Golden Freightways 50-150 8.00 150-250 6.00 250+ 4.00