1. Bengal Industries is analyzing the location of a possible new distribution ce
ID: 442817 • Letter: 1
Question
1. Bengal Industries is analyzing the location of a possible new distribution center among five candidates. The data for consideration is located in the table below.
Data
Location 1
Location 2
Location 3
Location 4
Location 5
Fixed Costs
$115,000
$105,000
$95,000
$100,000
$90,000
Direct material cost/unit
$3.45
$3.25
$3.70
$3.35
$3.55
Direct labor cost/unit
$8.50
$8.25
$8.25
$9.25
$9.25
Overhead/unit
$1.10
$1.15
$1.20
$1.15
$1.25
Transportation cost/unit
$1.85
$1.75
$2.10
$1.75
$1.95
Part A) With an annual production rate of 5,500 units, what is the least-cost location?
Part B) Would that location remain the same if the forecast was 25% higher than the current annual production rate? Determine the range of demand (annual production) that would suit each location best. (Hint: find cross-over points up to 25,000 annual production units) Discuss your recommendation for the best location over the next 4 years assuming a 25% growth rate.
2. Crate Distribution Services provides daily delivery services on a contract basis around the city. Crate is looking to relocate their central distribution center to be more efficient for their customers. Below is a table of the six most active districts with coordinates and contract levels.
Location
X-coordinate
Y-coordinate
Number of contracts
Downtown
40
80
25
Warehouse
25
105
85
Med City
25
40
15
China Town
15
130
45
University
55
90
35
Convention Cntr.
45
35
15
Discuss the best location for Crate to relocate their new distribution center center.
3. A manager has to decide upon four possible locations for a new manufacturing plant. The locations are assessed according to the below criteria.
Location
Criteria
Weight
1
2
3
4
Raw material availability
0.15
G
OK
P
OK
Infrastructure
0.1
OK
P
G
G
Transportation costs
0.35
VG
G
OK
VG
Labor relations
0.2
OK
OK
VG
P
Quality of life
0.2
G
VG
G
OK
VG = Very good; G = Good; OK = Acceptable; P = Poor
Discuss how the manager can use this information to choose a location. Provide an outline of the steps the manager can use to determine the best choice for a location. Provide an example of your method and your final recommendation.
Data
Location 1
Location 2
Location 3
Location 4
Location 5
Fixed Costs
$115,000
$105,000
$95,000
$100,000
$90,000
Direct material cost/unit
$3.45
$3.25
$3.70
$3.35
$3.55
Direct labor cost/unit
$8.50
$8.25
$8.25
$9.25
$9.25
Overhead/unit
$1.10
$1.15
$1.20
$1.15
$1.25
Transportation cost/unit
$1.85
$1.75
$2.10
$1.75
$1.95
Explanation / Answer
1a. Fixed cost will be the same, irrespective of the quantity of output. Other costs like direct materials cost, transport cost are given on a per unit basis. They will be multiplied with the total output i.e 5,500 units so as to determine the total costs. For example direct materials cost per unit for location 1 is $3.45. Total direct materials cost will be = 3.45*5,500 = $18,975.
The figures are shown in the table below:
Total cost is least for Location 5 at $178,000
b. if demand is 25% higher it will be: 1.25*5500 = 6,875 units
In this case, Location 3 will be least cost.
Demand for 1st year = 5,500 units. Location 5 is the best (as already shown)
Demand for 2nd year = 5,500*1.25 = 6,875 units. Location 3 is the best (as already shown)
Demand for 3rd year = 6,875*1.25 = 8593.75 units or 8594 units (rounded off). Calculations for this level is shown below -
Best location in this case is location 5 with cost of $227,504
Year 4: Demand = 8594*1.25 = 10,742.50 units or 10,743 units rounded off.
Here location 3 is the best with the cost of $258,830.75
Data Location 1 Location 2 Location 3 Location 4 Location 5 Fixed Costs $115,000 $105,000 $95,000 $100,000 $90,000 Direct material cost $18,975.00 $17,875.00 $20,350.00 $18,425.00 $19,525.00 Direct labor cost $46,750.00 $45,375.00 $45,375.00 $50,875.00 $50,875.00 Overhead $6,050.00 $6,325.00 $6,600.00 $6,325.00 $6,875.00 Transportation cost $10,175.00 $9,625.00 $11,550.00 $9,625.00 $10,725.00 Total $196,950 $184,200 $178,875 $185,250 $178,000Related Questions
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