Costs and Location

1217 Words Aug 2nd, 2013 5 Pages
1. A car rental agency uses 96 boxes of staples a year. The boxes cost $4 each. It costs $10 to order staples, and carrying costs are $0.80 per box on an annual basis.
(A) the order quantity that will minimize the sum of ordering and holding boxes of staples
(B) the annual cost of ordering and carrying the boxes of staples

2. . A service garage uses 120 boxes of cleaning cloths a year. The boxes cost $6 each. Ordering cost is $3 and holding cost is 10 percent of purchase cost per unit on an annual basis.
(A) The economic order quantity
(B) The total cost of carrying the cloths (excluding purchase price)
(C) The average inventory

3. . A shop that makes candles offers a scented candle, which has a monthly
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358Note that Location A has very low labor costs compared to Location B, but that is more than offset by its relatively high transportation costs compared to those of Location B. | Problem 4 | Center of gravity. Determine the center of gravity location for these destinations: | Solution | If the weekly quantities had all been equal, we could have used the two equations in Formula 8–3 to find the center of gravity. Because the weekly quantities are not all equal, we must use the equations in Formula 8–4.Hence, the center of gravity has the coordinates x = 3.5 and y = 6. |

Fixed and variable costs for four potential plant locations are shown below: 1. Plot the total-cost lines for these locations on a single graph. 2. Identify the range of output for which each alternative is superior (i.e., has the lowest total cost). 3. If expected output at the selected location is to be 8,000 units per year, which location would provide the lowest total cost? |

SOLUTION | | a. To plot the total-cost lines, select an output that is approximately equal to the expected output level (e.g., 10,000 units per year). Compute the total cost for each location at that level:Plot each location 's fixed cost (at Output = 0) and the total cost at 10,000 units; and connect the two points with a straight line. (See the accompanying graph.) b. c. d. The approximate ranges for which
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