A shipment of parts valued at $75,000 needs to be shipped from Tampa, FL, to Chicago, IL. They could be shipped by rail, taking 15 days at a cost of $1,575, or by truck, taking 4 days at a cost of $2,640
The annual holding cost rate for this type of item has been estimated at 22%. What option is more economical?
Daily cost of holding the item is .22(75,000)/365 = $45.21
Days saved by using truck is 15 - 5 = 11 days
11 days × $45.21 = $497.31
Extra shipping cost = $2,640 - $1,575 = $1,065
The $497.27 savings does not offset the extra shipping cost of $1,065. Send the shipment by rail.
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