A manager at Strateline Manufacturing must choose between two shipping alternatives: two-day freight and five-day freight. 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. Two thousand items are to be shipped. Which alternative would you recommend? Expalin

2 day freight

Explanation:

Given:

Number of units = 2,000

Primary holding cost = $10 per unit a year

Computation of Extra 3 days (five-day freight - two-day freight) holding cost:

Holding cost for 3 days = Number of units * Primary holding cost * (Number of days / 365)

= 2,000 * $10 * (3/365)

= $20,000 * (3/365)

= $164.39

Holding cost for 3 day of extra freight is $164.39.

This cost is higher than saving cost so, 2 days freight will be chosen.