Question

A manager must make a decision on shipping. there are two shippers: a and b. both offer a two-day rate: a for $514, and b for $527. in addition, a offers a three-day rate of $472 and a nine-day rate of $407, and b offers a four-day rate of $458 and a seven-day rate of $424. annual holding costs are 31 percent of unit price. three hundred and sixty boxes are to be shipped, and each box has a price of $146. which shipping alternative would you recommend? (round your intermediate calculations to 3 decimal places and final answers to 2 decimal places.)

A B
options cost option cost
2 days $___ 2 days $___
3 days $__ 4 days $__
9 days $__ 7 days $__

a.Ship two-day using A
b. Ship three-day using A
c. Ship two-day using B
d. Ship four-day using B
e. Ship seven-day using B

Answer 1

After calculating the holding costs for each shipping option and combining them with the shipping costs, the option with the lowest total cost is shipping two-day using Shipper A at $514. This is the recommended option.

Step-by-step explanation:

The decision on which shipping alternative to recommend depends on the total cost involved, which includes both the shipping cost and the holding cost (annual holding costs are 31 percent of the unit price). We must calculate the holding cost for each alternative and add it to the respective shipping cost to find the total cost for 360 boxes with each box priced at $146. The holding cost is calculated per day, based on the number of extra days beyond the two-day rate, as this is the shortest shipping time offered by any shipper.

For shipper A's three-day rate at $472:

• Extra holding days: 1
• Holding cost per day: $146 * 31% = $45.26
• Total holding cost for extra day: $45.26 * 1 = $45.26
• Total shipping cost: $472 + $45.26 = $517.26

For shipper A's nine-day rate at $407:

• Extra holding days: 7
• Total holding cost for extra days: $45.26 * 7 = $316.82
• Total shipping cost: $407 + $316.82 = $723.82

For shipper B's four-day rate at $458:

• Extra holding days: 2
• Total holding cost for extra days: $45.26 * 2 = $90.52
• Total shipping cost: $458 + $90.52 = $548.52

For shipper B's seven-day rate at $424:

• Extra holding days: 5
• Total holding cost for extra days: $45.26 * 5 = $226.30
• Total shipping cost: $424 + $226.30 = $650.30

Now, comparing the total costs for two-day shipping:

• Shipper A: $514 (no extra holding cost)
• Shipper B: $527 (no extra holding cost)

The option with the lowest total cost is shipping two-day using Shipper A at $514. Therefore, the recommended option is:

• a. Ship two-day using A