Problem 15-3 A manager must make a decision on shipping. There are two shippers,

Question

Problem 15-3 A manager must make a decision on shipping. There are two shippers, A and B. Both offer a two-day rate: A for $536 and B for $525. In addition, A offers a three-day rate of $464 and a nine-day rate of $416, and B offers a four-day rate of $459 and a seven-day rate of $436. Annual holding costs are 37 percent of unit price. Three hundred and ninety boxes are to be shipped, and each box has a price of $154. Which shipping alternative would you recommend? (Round your intermediate calculations to 3 decimal places and final answers to 2 decimal places. Omit the "$" sign in your response.) Cost Option 2 days 4 days 7 days Cost Option 2 days 3 days 9 days Ship three-day using A Ship two-day using B Ship four-day using B Ship seven-day using B Ship two-day using A

Explanation / Answer

Units = 390

Unit price = $ 154

Total cost = $ 60,060

Annual holding cost = 0.37 * 60,060 = $ 22,222.22

For shipping A,

For shipping B,

Hence, Answer is Option (A) Ship three-day using A as it has the lowest cost.

Options Shipping Cost ($) Incremental Days Incremental Cost ($) Total Cost ($) 2 days 536 0 0 536 3 days 464 1 60.88 524.88 9 days 416 7 426.16 842.16

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