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 $145 less than using two-day freight. The primary consideration is holding cost, which is $9 per unit a year. 2,125 items are to be shipped. Which alternative would you recommend

Answer 1

2 days freight

Step-by-step explanation:

The computation is shown below:

The compression is done by considering the holding cost

Holding cost = 2,125 items shipped × $9 per unit

= $19,125

Time Savings = 3 days

Now

Holding Cost for 3 days = $19,125 × (3 days ÷ 365 days )

= 157.19

This is more than than the given amount i.e $145

Therefore, it is advisable to go for 2 days freight as it contains the less amount as compared to 5 days