Question

A manager must make a decision on shipping. There are two shippers, A and B. Both offer a two-day rate: A for $510 and B for $527. In addition, A offers a three-day rate of $478 and a nine-day rate of $409, and B offers a four-day rate of $459 and a seven-day rate of $420. Annual holding costs are 35 percent of the unit price. Three hundred and eighty boxes are to be shipped, and each box has a price of $148. Which shipping alternative would you recommend?

A B
Option 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

The supplier should ship 2 days using B as it yields the lowest cost.

Step-by-step explanation:

Base on the scenario been described in the question, we can use the following method to solve the question

Units 410

Unit price $ 156.00

total cost of product to be shipped = (Unit price * Units) = 410*156 $ 63,960.00

Holding cost = 39% ,39%*63960 $ 24,944.400

Holding cost for 1 day = 24944.40/365 $ 68.341

Shipper A

Alternative Shippping cost Holding days Holding days * Holding cost for 1 day Total cost = Shipping + holding cost

2-Day $ 538.00 2 $ 136.682 $ 674.68

3 day $ 472.00 3 $ 205.022 $ 677.02

9 day $ 406.00 9 $ 615.067 $ 1,021.07

Shipper b

Alternative Shippping cost Holding days Holding days * Holding cost for 1 day Total cost = Shipping + holding cost

2-Day $ 529.00 2 $ 136.682 $ 665.68

4 day $ 455.00 4 $ 273.363 $ 728.36

7 Day $ 428.00 7 $ 478.386 $