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CHAPTER 6
TOTAL COST OF OWNERSHIP (TCO)
Table 6.3:
Total cost calculation for Chefs Supply [8].
Cost Element
Explanation of cost calculations Cost per
kilogram
Percentage
Dried fruit unit price Supplier quoted unit price per kg $0.29
59.2%
Ocean shipping
$2 500 per container/40 000 kg per
container
$0.062 12.6%
Tariffs and duties 15% x unit price ($.29)
$0.043 8.8%
Transfer charge
from US port to
warehouse
$350 per container/40 000 kg per
container
$0.009 1.8%
Warehouse storage
charge
$6.50 per pallet/2 000 kg per pallet $0.003 0.6%
Warehouse
handling fee
$6.25 per pallet/2 000 kg per pallet $0.003 0.6%
Inventory carrying
charge
40 000 kg held in inventory each
month
×
unit price ($.29)
=
$11
600 inventory value; $11 600
×
24% inventory carrying charge
=
$2 785 annual carrying charge;
$2 784/480 000 kg annual demand
=
$.006 carrying charge per kg
$0.006 1.22%
Local freight from
warehouse to plant
$275 per container/40 000 kg per
container
$0.007 1.43%
Receiving and
quality control
$4 per pallet/2 000 kg per pallet
$0.002 0.41%
Product loss before
production
3% loss
×
unit price ($.29). This
reduces the annual available dried
fruit for use during production to
465 600 kg
$0.009 1.8%
Production yield
loss
2%
×
465 600 kilos
=
9 312 kg lost
during production; 9 312 kilos.
×
$.29 unit price
=
$2 700.48 yield
loss; $2 700.48/465 000 kilos
=
$.006 per kilo.
$0.006 1.22%
Administrative
overhead
17%
×
unit price ($.29)
$0.05
10.2%
Estimated Total
Cost
$0.49
100%
An ingredient that has a $0.29 unit price per kg is estimated to have a $0.49
total landed cost per kg, an increase of almost 70% over the unit price. What
is not known is the estimated total cost per kg of doing business with Chefs
Supply’s current supplier or the other suppliers the company is considering.
That information is critical for making relative comparisons.
6.5.2 INVENTORY CARRYING CHARGES
While most of the costs presented in Table 6.3 are clear given the explanations