1. Masar Industries is analyzing the location of a possible new distribution cen
ID: 443979 • Letter: 1
Question
1. Masar 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.
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
Total Cost = Fixed Cost + variable Cost
With an annual production rate of 5,500 units, what is the least-cost location is Location 5.
No, As the production rate increases the location also changes from Location 5 to Location 2.
Bold figure show the best location over the next 4 years assuming a 25% growth rate.
Demand <= 6667 , Location 5 best to use
6667<=Demand<=11765 Location 3 best to use.
Demand >= 11765 Location 2 is best to use.
Location 1 and 4 is not suitable.
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 Fixed Cost $115,000 $105,000 $95,000 $100,000 $90,000 Total variable Cost $14.90 $14.40 $15.25 $15.50 $16.00 When Q is 5500 units, Total Cost $196,950.00 $184,200.00 $178,875.00 $185,250.00 $178,000.00 When Q is 6875 (25%high) units, Total cost $217,437.50 $204,000.00 $199,843.75 $206,562.50 $200,000.00 When Q is 8594 (25%high) units, Total cost $243,050.60 $228,753.60 $226,058.50 $233,207.00 $227,504.00 When Q is 10743 (25%high) units, Total cost $275,070.70 $259,699.20 $258,830.75 $266,516.50 $261,888.00 When Q is 13429 (25%high) units, Total cost $315,092.10 $298,377.60 $299,792.25 $308,149.50 $304,864.00Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.