HW3 -1

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Stevens Institute Of Technology *

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674

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Economics

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Jan 9, 2024

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docx

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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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