CPIM Practice Exam

Which option represents the lowest total annual cost between direct shipments to customers versus using the break-bulk distribution center?

1. $900,000

2. $1,440,000

3. $1,620,000

4. $1,800,000

The correct answer is: $1,440,000

When comparing the total annual costs of direct shipments to customers versus utilizing a break-bulk distribution center, it’s crucial to consider various cost components involved in both options. Utilizing a break-bulk distribution center generally allows for economies of scale in transportation. It centralizes deliveries, which can reduce costs associated with transportation, handling, and delivery times. The break-bulk approach effectively consolidates shipments, which can lead to lower costs per unit due to reduced freight expenses on larger, aggregated shipments compared to the costs of multiple direct shipments to each customer. In this scenario, the option representing the lowest total annual cost, which is $1,440,000, likely reflects a more efficient network where mitigating factors such as reduced handling costs, less redundancy in transportation routes, and the optimization of truckloads come into play, leading to substantial savings over time. The calculated costs associated with the break-bulk method can help distribute fixed costs over a larger volume of goods, thus reducing the overall cost per shipment. Understanding this pricing structure is crucial for effective decision-making in logistics and distribution channels, helping businesses to assess the best option for minimizing total costs while still addressing customer service requirements. The specific dynamics of this cost structure underscore the advantages of utilizing a break-bulk