Question

A given inventory item has a per-year holding cost of $360.00. One method of shipping this item is 4 days faster than the other, but its shipping cost is $1.00 more per unit. How much more expensive overall is the slower method compared to the faster method? (Include the pennies in your answer)

Answer 1

Solution:

Per-year holding cost (slow method) = $360

Per-day holding cost (slow method) = $360 / 365 = $0.9863 (1 year = 365 days)

Holding cost for 4 days (slow method) = $0.9863 x 4 = $3.9452

Given, faster method takes $1.00 more per unit, therefore, difference amount is calculated as:

Difference amount = Total per unit holding cost in slow method - Total per unit holding cost in fast method

Difference amount = $3.9452 - $1.00

Difference amount = $2.9452 or $2.95 (rounding off to two decimal places)

Slower method is $2.95 more expensive compared to the faster method.