An item with a holding cost of $500 per year can be shipped by air in 1 day,costing $100,or by ground in 4 days,costing $25.Assuming the holding costs of $500 per year are based on an operational year of 365 days,which is cheaper and by how much?

Question

Quizplus · Accepted Answer

Let's first find out the total cost of using air shipping:
Total cost of air shipping = $100 + ($500/365) = $101.37 per day

Now, let's find out the total cost of using ground shipping:
Total cost of ground shipping = $25 + ($500/365)*4 = $29.45 per day

Clearly, using ground shipping is cheaper than air shipping. Now, let's find out the difference in cost per day:
Difference in cost = Total cost of air shipping - Total cost of ground shipping
= $101.37 - $29.45
= $71.92

Therefore, ground shipping is cheaper by $71.92 per day, which is closest to option B ($70.89).

An Item with a Holding Cost of $500 Per Year