Question: Amco is considering ordering 8 0 0 headboards for the beds they make in their furniture line. They have located one supplier in China and

Amco is considering ordering 800 headboards for the beds they make in their furniture line. They have located one
supplier in China and the cost for the headboards is $58 each. The headboards could be shipped via ocean
container and rail from the suppliers location to Amcos plant in North Carolina in lots of 200. The entire cost for
the container is $16,000 and the headboards represent one quarter of the shipment by cube. The tariffs applicable
to the shipment are 4%. Alternatively, Amco could fill a container with 500 headboards and ship the remainder in a
second container when needed. Amco receives a 7% discount from the supplier for orders over 500 units. The filled
container would still cost $16,000. The cost of holding the headboards in inventory is 7% of the cost of the
inventory at the end of each month. Amco uses about 200 headboards per month. Tariffs remain the same. Which
option should Amco select based on landed cost?

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