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 $200 less than using two-day freight. The primary consideration is holding cost, which is $8 per unit a year. 2,400 items are to be shipped. Which alternative would you recommend

Answer 1

Answer:

Two day freight

Explanation:

Calculation for Which alternative would you recommend

H = $8 per item per year (2,400item) = $19,200per year.

d = 3 days

Incremental holding cost = $19,200 (3/365) = $157.8

Based on the above calculation This is Lower tham the savings that would result by using five-day freight. Therefore, use Two day freight.