A manager at Strateline Manufacturing must choose between two shipping alternatives: two-day freight and five-day freight. Using five-day freight would cost $145 less than using two-day freight. The primary consideration is holding cost, which is $10 per unit a year. 2,860 items are to be shipped. Which alternative would you recommend? (Round your intermediate calculations to 2 decimal places.) Two-day freight correct

A manager at Strateline Manufacturing must choose between two shipping alternatives: two-day freight and five-day freight. Using five-day freight would cost $145 less than using two-day freight. The primary consideration is holding cost, which is $10 per unit a year. 2,860 items are to be shipped.

Which alternative would you recommend? (Round your intermediate calculations to 2 decimal places.)

Two-day freight

Explanation:

H = $10 per item per year (2,860 item) = $28,600 per year.

d = 3 days

Incremental holding cost = $28,600 (3/365) = $235.07

This exceeds the savings that would result by using five-day freight. Therefore, use two-day freight.