Sample Essay

Based on the projected demand with a continuous annual increase of 10 percent per year, the cost of using the air based transportation option and the ocean based transportation option were assessed. In the analysis, the fixed costs were held constant while the variable costs including the transportation and the inventory costs were adjusted for the number of units of increase in the demand every year.

The variable cost of transporting one unit through the ocean stood at $0.07, while the variable cost of transporting one unit through the air was determined to be $0.16. The analysis of the demand and the cost of using either option is depicted in the table below.

Projected Costs of Using Air and Ocean based Transportation

 

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Ocean Transportation

 $

 $

 $

 $

 $

 $

   Fixed Costs        410,000     410,000     410,000     410,000     410,000     410,000
   Variable Cost        110,000     121,000     133,100     146,410     161,051     177,156
Total        520,000     531,000     543,100     556,410     571,051     587,156
 
Air Transportation            
   Fixed Costs        350,000     350,000     350,000     350,000     350,000     350,000
   Variable Cost        236,000     259,600     285,560     314,116     345,528     380,080
Total        586,000     609,600     635,560     664,116     695,528     730,080

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Essay: Medium Alternatives and Demand Analysis
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