HW3 -1
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Homework 3
1.
What is the annual cost of serving the entire nation from Chicago?
Wipes
Ointment
Fixed cost -
5,000
1,500
Variable cost-
45,000
10,300
Transportation coat-
23,000
2,697
Total
73,464
14,497
Total cost -
87,961
----------------------------------------------------------------------------------------------
2.
Do you recommend adding any facility plant(s)? If so, where should the
plant(s) be built, and what lines should be included? Assume that the
Chicago plant will be maintained at its current capacity but could be run at
lower utilization. Would your decision be different if transportation costs
were half of their current value? What if they were double their current
value?
A) Plant with same transportation cost
86,325.
40
B)
Half the transportation cost
74,880.
70
C)
double Transportation cost
106,450.
80
A)
If we look at how much it costs to ship one unit of a product, it's clear that
opening a new plant doesn't make a big difference in how much it costs to
ship goods. Even though it costs a lot to build a new building, sending towels
and ointments isn't that much more expensive. Since the Chicago plant can't
be shut down totally, some will still be made even if it is used less. Because of
this, maintenance costs will go up and performance will go down, which will
hurt income because resources won't be used. It's also important to think about
other things that could be done to cut down on traffic.
B)
If shipping costs are cut in half, it's best for the Chicago plant to run at full
capacity because it makes sense and is easy to keep making things there. A
new installation shouldn't be thought of because of this.
C)
On the other hand, when transportation costs double, moving production sites
to a new place with the lowest transportation costs is a good idea. So, you
could say that Atlanta is in one of the best places because it has the lowest cost
of getting around. The oil output at this factory should go at full speed so that
it can meet all of the demand.
----------------------------------------------------------------------------------------------
3.
If Matt could design a new network from scratch (assume he did not have the
Chicago plant but could build it at the cost and capacity specified in the
case), what production network would you recommend? Assume that any
new plants built besides Chicago would be at the cost and capacity specified
under the new network options. Would your decision be different if
transportation costs were half of their current value? What if they were
double their current value?
A) Plant Beside Chicago
85,454.80
B)
Half the transportation cost
74,251.20
C) double Transportation cost
106,516.80
A)
This is the most cost-effective choice because shipping isn't too expensive and
the plant in Chicago can make both wipes and ointments.
B)
No, I wouldn't make a different choice. Even if shipping costs went down, it
would still be cheaper to make both wipes and ointments at the same plant.
This is because the fixed costs of running two plants would be more than the
savings from not having to pay for shipping.
C)
Yes, I would make a different choice if transportation prices were double what
they are now. In this case, it would be cheaper to have two separate plants, one
for wipes and one for ointments. This would allow Cool Wipes to send wipes
from Atlanta to the Northwest and Southwest and ointments from Los Angeles
to the Northeast and Southeast. This would save money on shipping costs.
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(FIRST)
Aggregate Cost Data
Unit Cost Data
Average Average Average
I Fixed
Variable Total
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TC
Marginal
Quantity Fixed Variable Total Change in I Cost
of
Output (FC) (VC)
Cost
ATC
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IFC
VC
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I XX
XX
XX
XX
$3.00
$300
50
100
600
300
900
I $6.00
$3.00
$9.00
100
1.00
150
200
600
400
| 3.00
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50
.50
- 250
300
1050
I 2.00
1.50
1.00
350
400
1150
I 1.50
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2.88
200
2.00
- 450
500
600
750
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I 1.20
1.50
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variable Benefits
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B(Q)
C(Q)
MB(0)
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900
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800
2
1,700
300
800
200
600
2,400
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1,800
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E
400
1,000
1,500
400
500
2,000
2,000
1,800
1,400
4
600
200
3,500
500
3,900
2,100
D
600
-200
4,200
4,400
4,500
2,800
300
700
-400
800
200
800
-600
4,500
100
900
-800
10
4,500
5,500
-1,000
1,000
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3,800
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0
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100
1700
500
2200
5
200
1700
1200
2900
6
57
2000
20
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4000
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1100
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9
15
6000
20
1600
400
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5200
6900
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8000
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1100
500
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9000
10700
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38
10000
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600
1700
15000
16700
25
60
12000
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700
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23800
25500
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88
14000
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800
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36800
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