Question

Your options for shipping

​$99 comma 790

of machine parts from Hamilton to Kuala​ Lumpur, Malaysia, are​ (1) use a ship that will take

29

days at a cost of

​$3 comma 880

​,

or​ (2) truck the parts to Vancouver and then ship at a total cost of

​$4 comma 820

.

The second option will take only

22

days. You are paid via a letter of credit the day the parts arrive. Your holding cost is estimated at

30

​%

of the value per year.

​a)

▼

Alternative 1

Alternative 2

is more​ economical, with a daily holding cost of

​$nothing

.

​(Enter your response rounded to two decimal​ places.)

​b) What issues are not included in the data​ presented?

A.

For each additional day it takes to deliver the​ parts, you forgo the interest you could have earned on the payment.

B.

For each additional day it takes to deliver the​ parts, customer satisfaction is likely to decrease.

C.

For each additional day it takes to deliver the​ parts, total fuel costs for shipping increase.

Answer 1

Answer : (a.) Calculation for which machine is economical :

First we need to calculate Holding Cost per Day

Holding Cost per Day = 99790 * 30% = 29937 / 365 = 82.019

There will be saving for 7 days(29 - 22)

Holding Cost of 7 days = 82.019 * 7 = 574.13

Cost Saving = 940 (4820 - 3880)

Holding Cost is less than the Cost Saving,Therefore Alternative 1 will be preferrable.

(b.) Correct Option is For each additional day it takes to deliver the​ parts, customer satisfaction is likely to decrease.Due to delay in delivery customer will not be satisfied.