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 $522 and B for $532. In addition, A offers a three-day rate of $478 and a nine-day rate of $410, and B offers a four-day rate of $456 and a seven-day rate of $424. Annual holding costs are 30 percent of unit price. Three hundred and thirty 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.) Option 2 days 3 days 9 days Option 2 days 4 days 7 days Cost Cost Ship three-day using A Ship two-day using B Ship four-day usingB Ship seven-day using B Ship two-day using A

Explanation / Answer

Hence Shipment A 2-days is the one with lowest cost.

Total units= 330 boxes Unit price= 154 $ Total Ship= 50820 $ Total holding cost per shipment= .30*50820 = 15246 $ Shipment A: Options Shipping cost Incremental days Incremental cost Total cost 2-day 522 0 0 522 3-day 478 1 15246/365 = 41.7698 519.77 9-day 410 7 292.389 702.389 Shipment B: Options Shipping cost Incremental days Incremental cost Total cost 2-day 532 0 0 532 4-day 456 2 83.5397 539.54 7-day 424 5 208.8493 632.85

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