57) a. The most important inventory item has annual holding costs of $438.00. On
ID: 359346 • Letter: 5
Question
57)
a.
The most important inventory item has annual holding costs of $438.00. One method of shipping this item is 4 days faster than the other, but it is $0.49 more per unit.
How much more expensive is the slower method compared to the faster method? (Include the pennies in your answer)
b.
Determine the 2 day incremental holding costs for shipping 75 boxes of parts when each box has a price of $220 and holding costs are 28% of the total shipment value. The shipping costs are $355 for 1 day and $300 for 3 days.
Explanation / Answer
a) Holding cost per day = 438/365 = $ 1.2 per unit per day
Savings in holding cost by using faster shipping mode = 4 days * $ 1.2 per day holding cost = $ 4.8 per unit
Net savings by using faster method = 4.8 - 0.49 = $ 4.31 per unit
Slower method is more expensive than the faster method by $ 4.31
b) Total shipment value = 75*220 = $ 16,500
Annual Holding cost = 16,500*28% = $ 4,620
2 days increment holding cost = 4620*2/365 = $ 25.31
Savings in shipping cost by using slower method = 355-300 = $ 55
Net savings by using slower method = 55 - 25.31 = $ 29.68
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