Question

Your options for shipping $100,000 of machine parts from Baltimore to Kuala Lumpur, Malaysia, are (1) use a ship that will take 30 days at a cost of $3,800 or (2) truck the parts to Los Angeles and then ship at a total cost of $4,800. The second option will take only 20 days. You are paid via a letter of credit the day the parts arrive. Your holding cost is estimated at 30% of the value per year.
a) Which option is more economical?b) What customer issues are not included in the data presented?

Answer 1

Answer: option X is more economical

Explanation: product holding cost = (Cost of holding annually x value of products ) / 365

= (0.30% x $100,000)/ 365 = 82.19

Using option X

$3,800 + ($82.19 x 30) = $3,800 + $2465.7 = $6265.7

Using option Y

$4,800 + ($82.19 x 20) = $4,800 + $1,643.8 = $6443.8

a. Option X is more economical Of the two because it saves ($6,443.8 - $6265.7), Because you get to save $178.1

b. From the information or data provided in the question, it was not stated if the customers required or needed a faster shipping schedule or not.