Question

Your options for shipping 96,620$ of machine parts from Baltimore to Kuala? Lumpur, Malaysia, are? (1) use a ship that will take 30 days at a cost of 3,590$ or? (2) truck the parts to Los Angeles and then ship at a total cost of $4710. The second option will take only 20 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 yea

BLANK is more? economical, with a daily holding cost of $ BLANK

Please explain! Thanks

Answer 1

Option 1

Value of item , C = 96620

Holding cost , I = 30% of value per year = 30%/365 Value per day

Option 1

Holding cost for 30 days = (30*0.3 * 96620)/365 = 2382.4

Holding cost per day = 79.4

order cost = 3590

Total cost = 3590+2382.4 = 5972.4

Option 2:

Oder cost = 4710

For 20 days

Holding cost for 20 days = 20*0.3*9620/365 = 1588.2

Holding cost per day =52.94

Total cost = Order cost + Holding cost = 4710+1588.2 = 6298.27

If we see , Total cost

Total cost of option 1 < Total Cost of option 2

Even though holding cost per day in option 2 is less than option 1 , other cost is much high in option 2 that mitigate the saving of holding cost

so Option 1 is more economical with a daily holding cost of $79.4