The Kohler Corporation is analyzing the logistics costs for three alternative cu
ID: 375827 • Letter: T
Question
The Kohler Corporation is analyzing the logistics costs for three alternative customer fulfillment processes for its industrial power generation systems. The following cost information is provided. System Fiued Cost Variable Cost A $600,000 B $900,000 C $1,000,000 $3,000 $1,250 $1,000 Assume that each process is comparable in quality, timeliness, and flexibility. Which customer fulfillment process should Kohler choose if it estimates it will deliver only 150 generator systems per year? I Choose ] Which customer fulfillment process should Kohler choose if it estimates it will deliver 450 generator systems per year? I Choose ]Explanation / Answer
When the volume of output (Q) = 150 generator system,
Total cost for system A = Fixed cost + (Q x Variable cost)
= 600000 + (150 x 3000)
= 600000 + 450000
= $1050000
Total cost for system B = Fixed cost + (Q x Variable cost)
= 900000 + (150 x 1250)
= 900000 + 187500
= $1087500
Total cost for system C = Fixed cost + (Q x Variable cost)
= 1000000 + (150 x 1000)
= 1000000 + 150000
= $1150000
So they should choose system A when it estimate it will deliver 150 generator, as system A has the lowest total cost
When the volume of output (Q) = 450 generator system,
Total cost for system A = Fixed cost + (Q x Variable cost)
= 600000 + (450 x 3000)
= 600000 + 1350000
= $1950000
Total cost for system B = Fixed cost + (Q x Variable cost)
= 900000 + (450 x 1250)
= 900000 + 562500
= $1462500
Total cost for system C = Fixed cost + (Q x Variable cost)
= 1000000 + (450 x 1000)
= 1000000 + 450000
= $1450000
So they should choose system C if it estimate it will deliver 450 generator system, as system C has the lowest total cost.
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