Jones Bakery sells bread throughout the New England region. Jones is considering building bakeries in 3 locations. Each bakery can bake up to 900,000 loaves per year. The cost of building each bakery and the total cost of baking and shipping a load of bread is given in the file below. Assume that Jones only has 3 customers and their demands each year are; Customer 1 – 700,000 loaves, Customer 2 – 400,000 loaves, and Customer 3 – 300,000 loaves. Assume that future shipping and production costs are discounted at 12% per year. Assume that once built a bakery last forever. How would you minimize the company’s total cost of meeting demand, present and future?
Unit Production and shipping costs per loaf
Customer 1 Customer 2 Customer 3 Factory Cost
Boston $0.16 $0.34 $0.26 $5 million
Providence $0.40 $0.30 $0.35 $4 million
Hartford $0.45 $0.45 $0.23 $4.5 million