Annual demand for an item is 15,000 units. Unit price is $320. Annual holding cost rate is 20% of unit price, Air freight takes 5 days and costs $30 per unit. Ocean freight takes 25 days and costs $10 per unit. For air freight 2 weeks of safety stock will be held and 6 weeks of safety stock will be held for the ocean freight option. Which mode has the lower annual cost and what is the cost? Use 365 days and 52 weeks in your calculation.

Air $503,535

Ocean. $329,984

Ocean $150,000

Air $450,000

Answer rating: 100% (QA)

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