Use This Information for Questions That Refer to the United

question 36

Multiple Choice

Use this information for questions that refer to the United Tools case. Terry Harter is marketing manager for United Tools,and Mike O'Reilly is the firm's logistics manager.They work together to make decisions about how to get United's hand and power tools to its customers-a mix of manufacturing plants and final consumers (who buy United tools at a hardware store) .United Tools does not own its own transport facilities,and it works with wholesalers to reach its business customers.
Together,Harter and O'Reilly try to coordinate transporting,storing,and product-handling activities to minimize cost while still achieving the customer service level their customers and intermediaries want.This usually requires that United keep an inventory of most of its products on hand; but demand for its products is fairly consistent over time,so inventory is easy to manage.
Harter has identified four options for physical distribution systems she could use to reach two of her key wholesalers,Ralston Supply and Ricotta Tool Co.The total cost for each option-and the distribution service levels that can be achieved-are as follows:
$\begin{array}{c}\begin{array}{lll}\\1.\\2.\\3.\\4.\\\\\end{array}\begin{array}{lll}\text{Main feature of system:}\\Airfreight\\Inland ~waterways\\Trucks\\Rail ~and ~regional\\warehouses\\\end{array}\begin{array}{lll}\begin{array}{rc}\text { Total Cost}&\text { Distribution Service Level }\\\$ 1,000,000 & 95 \text { percent } \\\$ 300,000 & 60 \text { percent } \\\$ 500,000 & 70 \text { percent } \\\$ 650,000 & 80 \text { percent }\\\\\end{array}\end{array}\end{array}$
Ralston Supply expects a very high level (90 percent) of distribution customer service.Ricotta Tool Co.is willing to settle for a 70 percent customer service -leveleven if that means some products will occasionally be out of -stockif it gets products at a lower price.
For its large retail hardware customers (like Home Depot) ,United regularly ships smaller orders directly to individual stores or in some cases to the retail chain's warehouses.Cross-country shipments usually go by rail,while regional shipments usually go by truck.
To help in managing excess inventory,United Tools would most likely use

• A)a private warehouse.
• B)a public warehouse.
• C)the piggyback mode.
• D)a distribution center.
• E)All of these would help in managing excess inventory.

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Definitions:

Operating Activity

Transactions and events that are directly related to the primary business operations of a company, such as sales revenue and expense transactions.

Financing Activity

Transactions involved in raising, repaying, or restructuring the capital funding of a company, as reflected in the cash flow statement.

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been subtracted from revenue.

Depreciation

A method of allocating the cost of a tangible asset over its useful life.