Question: A fabricator uses about 13,000 pounds of steel each week. The fabricator estimates their holding cost to be 31% per year. A supplier has offered

A fabricator uses about 13,000 pounds of steel each week. The fabricator estimates their holding cost to be 31% per year. A supplier has offered the fabricator two options. Option 1 is to purchase steel in lots of 35,000 pounds (truckload). The price per pound for option 1 is $0.19 per pound. Option 2 is to have steel delivered by rail. The cost per pound for option 2 would be $0.16 per pound. Deliveries by rail will include 150,000 pounds of steel. In either case, the supplier will charge the firm a fixed fee of $750 per delivery. Which option is less costly for the fabricator?

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