Question

A container of ball-bearings valued at $250,000, currently located in Houston, TX, needs to be delivered to the Morton, IL, plant. The standard shipment method takes four days. However, for an additional charge of $500, the container can be sent overnight to arrive one day later. The annual holding cost rate for this type of item has been estimated at 25%. Which option is more economical

Answer 1

the overnight delivery is cheaper

Step-by-step explanation:

annual holding cost per day = $250,000 x 25% x 1/365 = $171.23

since you are saving 3 days of delivery time, you can save up to $171.23 x 3 = $513.69

the gain = savings - additional fee = $513.69 - $500 = $13.69

since you actually gain from this transaction, then you should pay the overnight freight