(10/365)(3)(2000) = ?
I'm sure you can take it from here.
A manager at Strateline Manufacturing must chose between two shopping Alternatives; Two-day freight and five-day. Using five-day freight would cost $135 less than using two-day freight. The primary consideration is holding cost, which is $10 per unit a year. 2000 items are to be shipped. Which alternative would you recommend? Explain.
I'm sure you can take it from here.
=$164
Let's break down the calculations:
1. Cost of two-day freight:
Since the cost of using five-day freight is $135 less than using two-day freight, we can calculate the cost of two-day freight as follows:
Cost of two-day freight = Cost of five-day freight + $135
2. Cost of five-day freight:
To calculate the cost of five-day freight, we need to consider the holding cost for the items since they will be in transit for a longer time.
Cost of five-day freight = (Number of items) * (Holding cost per unit per year) * (Number of years)
Now, let's substitute the given values into the equations:
Number of items = 2000
Holding cost per unit per year = $10
Number of years = We are not given the time period, so let's assume it is one year for simplicity.
Plugging in the values:
Cost of five-day freight = 2000 * $10 * 1 = $20,000
Now we can substitute the cost of five-day freight into the first equation:
Cost of two-day freight = $20,000 + $135 = $20,135
Comparing the costs:
Two-day freight costs $20,135, while five-day freight costs $20,000. The difference between the costs is ($20,135 - $20,000) = $135.
Based on the calculations, the cost of using five-day freight is $135 less than using two-day freight. Therefore, I would recommend choosing the five-day freight alternative since it will save $135 in shipping costs.