Asked by Michelle Sutton on Jun 03, 2024
Verified
A shipment of parts valued at $175,000 needs to be shipped from Thunder Bay, ON to Slave Lake, AB. They could be shipped by rail, taking 15 days at a cost of $1,525, or by truck, taking 4 days at a cost of $2,640. The annual holding cost rate for this type of item has been estimated at 29%. What option is more economical?
Holding Cost Rate
The annual cost per unit of holding an item in inventory, including storage, insurance, spoilage, theft, and other related costs.
Thunder Bay
A city in Ontario, Canada, known for its natural beauty and as a gateway to outdoor activities in the surrounding region.
- Understand how to calculate the total cost of shipping including both transportation and holding costs.
- Analyze and compare different shipping options to determine the most economical choice.
- Apply the concept of annual holding cost rate to real-life shipping scenarios.
Verified Answer
JT
Jessica TorresJun 09, 2024
Final Answer :
Daily cost of holding the item is .29(175,000)/365 = $139.04
Days saved by using truck is 15 - 4 = 11 days
11 days × $139.04 = $556.16
Extra shipping cost = $2,640 - $1,525 = $1,115
The $556.16 savings does not offset the extra shipping cost of $1,115. Send the shipment by rail.
Days saved by using truck is 15 - 4 = 11 days
11 days × $139.04 = $556.16
Extra shipping cost = $2,640 - $1,525 = $1,115
The $556.16 savings does not offset the extra shipping cost of $1,115. Send the shipment by rail.
Learning Objectives
- Understand how to calculate the total cost of shipping including both transportation and holding costs.
- Analyze and compare different shipping options to determine the most economical choice.
- Apply the concept of annual holding cost rate to real-life shipping scenarios.