Engineering studies of three plant sites, located at mile markers 103, 111, and 123, along a to-be constructed highway show a daily demand of 20,000, 7,000, and 6,000 yd3 of concrete in each location for 6 days per week. Two plans, A and B, meet this demand.
In plan A, one central and large plant having a daily capacity of 40,000 yd3, is located equidistant between the locations and produces concrete with a fixed cost of $20,000 per day, and a variable cost of $1.50 per yd3.
Alternatively, plan B has portable and distributed operations in each location with capacity of 24,000, 8,000, and 8,000 yd3. Fixed costs are $15,000, $7,000, and $7,000 per day. Because of lower transportation costs, variable costs per yd3 are $1.00, $1.10, and $1.20 per yd3.
1) Which alternative, A or B, is more desirable based on demand requirements?
(Hint: Consider this tradeoff study as “short term.”)
2) If sales were to increase to production capacity, then does the best choice change?
What variable cost per cubic yard may plan B increase to for an iso-cost equal to A at demand.