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

Answer 1

Answer:

Ship two-day using A ship

Explanation:

It is given that :

Total number of boxes to be shipped = 360 boxes

Cost of annual holding  = 31%

                                       = 0.31

Price for each box = $ 146

∴ Cost of total boxes = 146 x 360

                                    = $52,560

∴ Total holding cost = 0.31 x 52560

                                  = $ 16,293.60

Now the holding cost for one day = $\frac{16,293.60}{365}$ days

                                                       = 44.640  per day

For shipper A

Shipping cost + days x holding cost

Cost for 2 days = 514 + 2 x 44.640 = $ 603.28

Cost for 3 days = 472 + 3 x 44.640 = $ 605.92

Cost for 9 days = 407 + 9 x 44.640 = $ 808.76

Similarly for shipper B

Shipping cost + days x holding cost

Cost for 2 days = 527 + 2 x 44.640 = $ 616.28

Cost for 4 days = 458 + 4 x 44.640 = $ 636.56

Cost for 7 days = 424 + 7 x 44.640 = $ 736.48

Thus from above we can conclude that choosing Ship A for two days is the correct option.