1. Aero, Inc., is a manufacturer of air conditioners that has seen its demand grow significantly. The company anticipates nationwide demand for the next year to be 190,000 units in the South, 140,000 units in the Midwest, 110,000 units in the East, and 100,000 units in the West. Managers at Aero are designing the manufacturing network and have selected four potential sites-New York, Atlanta, Chicago, and San Diego. Plants could have a capacity of either 200,000 or 400,000 units. The annual fixed costs at the four locations are shown in the following Table, along with the cost of producing and shipping an air conditioner to each of the four markets. Where should Aero build its factories and how large should they be?
|
New York |
Atlanta |
Chicago |
San Diego |
| Annual fixed cost of 200,000 plant |
$6 million |
$5.5 million |
$5.6 million |
$6.1 million |
| Annual fixed cost of 400,000 plant |
$10 million |
$9.2 million |
$9.3 million |
$10.2 million |
| East |
$211 |
$232 |
$238 |
$299 |
| South |
$232 |
$212 |
$230 |
$280 |
| Midwest |
$240 |
$230 |
$215 |
$270 |
| West |
$300 |
$280 |
$270 |
$225 |
2. The XYZ Company has a choice between two warehouses. A lease at location A costs $1000 per month with a payment of $2000 up front to guarantee the 3 year lease. Location B would cost $1100 per month and would be leased from month to month. The anticipated revenue in either location is $1500 per month. The estimated rate of return is 10% per year. Using net present value, determine which location would be the better choice.
3. A manufacturer of industrial sales has production capacity of 1,000 units per day. Currently, the firm sells production capacity for $12 per unit. At this price, all production capacity gets booked about one week in advance. A group of customers have said that they would be willing to pay $20 per unit if capacity was available on the last day. About ten days in advance, demand for the high-price segment is normally distributed with a mean of 250 and a standard deviation of 100. How much production capacity should the manufacturer reserve for the last day?