Question

A manager at Strateline Manufacturing must choose between two shipping alternatives: two-day freight and five-day freight. Using five-day freight would cost $135 less than using two-day freight. The primary consideration is holding cost, which is $10 per unit a year. Two thousand items are to be shipped.Which alternative would you recommend? Expalin

Answer 1

Answer:

2 day freight

Explanation:

Given:

Number of units = 2,000

Primary holding cost = $10 per unit a year

Computation of Extra 3 days (five-day freight - two-day freight) holding cost:

Holding cost for 3 days = Number of units × Primary holding cost × (Number of days / 365)

= 2,000 × $10 × (3/365)  

= $20,000 × (3/365)

= $164.39

Holding cost for 3 day of extra freight is $164.39.

This cost is higher than saving cost so, 2 days freight will be chosen.

Answer 2

The alternative that would be recommended is the 2-days freight.

The first thing to do is to calculate the holding cost. This will be:

= 2000 × 10

= 20000

Then, the holding cost for three days extra freight will be:

= 20000 × (3/655)

= 164.38

Therefore, this is more than $135 and it's not advisable.

Therefore, it's advisable to go for 2-days freight.

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