When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance. This is particularly true of products that:

Question

Business

Ronan Horne

19 August, 16:41

When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance. This is particularly true of products that:

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Answers (2)

Know the Answer?

Ivan Daugherty · Answer 1

The correct answer is have a low value-to-weight ratio.

Explanation:

Products that have low weight-value ratios (for example, coal, iron ore, bauxite and sand) also have low storage costs but high movement costs as a percentage of their sales price. Inventory management costs are calculated as a ration of the value of the product. Low product value means low storage cost, since inventory management costs are the dominant factor in storage cost. When the value of the product is low, transport costs represent a high proportion of the sale price.

Consequently, companies that deal with products of low value for weight frequently try to negotiate more favorable transport rates; rates are generally lower for raw materials than for finished products of the same weight.

Haylee Kaufman · Answer 2

Answer: It is particularly true of products that have low value - to - weight ratio

Explanation:

Products that have high value - to - weight ratio are commodities that are costly but do not weigh so much. Therefore, the cost to ship these commodities from where they are produced to other markets or places they are required is usually low.

This naturally implies that it may not be a bad idea (business - wise) if such commodities are manufactured or produced at a single place and then shipped to other locations from there. Example of products that usually have high value - to - weight ratios are diamond necklaces or wrist watches. A single unit of such products may not weigh more than 150g but may worth more than one million US dollars.

On the other hand, products or goods that are said to have low value - to - weight ratio are commodities that weigh so much but at the same time not expensive. Examples of such products that may have low value - to - weight ratios are certain bulky chemicals and paints. Since these sort of commodities are usually inexpensive, their bulky or heavy nature may then make them to be extremely expensive if they are shipped a long distance.

Therefore, it will make more "business - sense" and save costs if these commodities are manufactured or produced in different locations and markets they are needed.