Problem: Recommend whether to locate a second production plant that considers operations costs for each facility and if the capacity to be added at a new plant in one of two cities (Milan or Zurich) is sufficient.
Based on land lease, utilities, labor etc. the Milan facility is estimated to have cost of $1250 per thousand cases of candy per month (for a capacity of 1500 thousand per month), whereas Zurich (capacity 1250 thousand per month) is at $1130 per thousand cases per month. Raw materials costs have to be added. The following data is for the past 5 years and shows the probability for raw materials costs per 1000 cases produced. What would be the average cost of raw materials for the next five years? Round to an integer.
Add this cost to the base cost to determine expected per month per 1000 cases cost for each facility.
Cost per 1000
cases of candy
produced,
per month Probability
$180 0.08
$200 0.12
$220 0.25
$240 0.2
$260 0.2
$280 0.15