Arca Cucine and Gaggenau are two European manufacturers of kitchen appliances that have merged. Arca Cucine has plants in Italy, Germany, and Finland, whereas Gaggenau has plants in the UK and Romania. The European market is divided into four regions: north, east, west, and south. Plant capacities (millions of units per year), annual fixed costs (millions of euros per year), regional demand (millions of units), and variable production and shipping costs (euros per unit) are as shown in Table 1 below. TABLE 1: Capacity, Cost, and Demand Data for CEDCD and Bemz Variable Production and Shipping Costs Annual Tax Company Plant/Destination North East South West Capacity Fixed Rate Cost Italy 100 110 110 10 100 50 1,000 0.25 Arca Cucine Germany 95 105 105 105 50 1,000 0.25 Demand Finland 90 100 115 110 40 850 0.3 30 15 20 35 UK 105 120 115 90 50 1,000 0.2 Gaggenau Gaggenau Romania 110 105 85 115 60 1,150 0.35 Demand Total Demand 15 20 30 20 45 35 50 55 Each appliance sells for an average price of 300 euros. All plants are currently treated as profit centers, and the company pays taxes separately for each plant. Tax rates in the various countries are as follows: Italy, 0.25; Germany, 0.25; Finland, 0.3; UK, 0.2; and Romania, 0.35. 1. After the merger, what is the minimum cost configuration if none of the plants is shut down? 2. After the merger, what is the minimum cost configuration if plants can be shut down (assume that a shutdown saves 100 percent of the annual fixed cost of the plant)?
Arca Cucine and Gaggenau are two European manufacturers of kitchen appliances that have merged. Arca Cucine has plants in Italy, Germany, and Finland, whereas Gaggenau has plants in the UK and Romania. The European market is divided into four regions: north, east, west, and south. Plant capacities (millions of units per year), annual fixed costs (millions of euros per year), regional demand (millions of units), and variable production and shipping costs (euros per unit) are as shown in Table 1 below. TABLE 1: Capacity, Cost, and Demand Data for CEDCD and Bemz Variable Production and Shipping Costs Annual Tax Company Plant/Destination North East South West Capacity Fixed Rate Cost Italy 100 110 110 10 100 50 1,000 0.25 Arca Cucine Germany 95 105 105 105 50 1,000 0.25 Demand Finland 90 100 115 110 40 850 0.3 30 15 20 35 UK 105 120 115 90 50 1,000 0.2 Gaggenau Gaggenau Romania 110 105 85 115 60 1,150 0.35 Demand Total Demand 15 20 30 20 45 35 50 55 Each appliance sells for an average price of 300 euros. All plants are currently treated as profit centers, and the company pays taxes separately for each plant. Tax rates in the various countries are as follows: Italy, 0.25; Germany, 0.25; Finland, 0.3; UK, 0.2; and Romania, 0.35. 1. After the merger, what is the minimum cost configuration if none of the plants is shut down? 2. After the merger, what is the minimum cost configuration if plants can be shut down (assume that a shutdown saves 100 percent of the annual fixed cost of the plant)?
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Transcribed Image Text:Arca Cucine and Gaggenau are two European manufacturers of kitchen appliances that have merged.
Arca Cucine has plants in Italy, Germany, and Finland, whereas Gaggenau has plants in the UK and
Romania. The European market is divided into four regions: north, east, west, and south. Plant
capacities (millions of units per year), annual fixed costs (millions of euros per year), regional demand
(millions of units), and variable production and shipping costs (euros per unit) are as shown in Table 1
below.
TABLE 1: Capacity, Cost, and Demand Data for CEDCD and Bemz
Variable Production and Shipping Costs
Annual
Tax
Company Plant/Destination North East South West Capacity Fixed
Rate
Cost
Italy
100 110 110
10 100 50
1,000
0.25
Arca Cucine
Germany
95
105
105
105 50
1,000
0.25
Demand
Finland
90
100 115
110 40
850
0.3
30
15
20
35
UK
105
120
115
90
50
1,000
0.2
Gaggenau
Transcribed Image Text:Gaggenau
Romania
110
105 85
115 60
1,150
0.35
Demand
Total Demand
15
20
30
20
45
35 50
55
Each appliance sells for an average price of 300 euros. All plants are currently treated as profit centers,
and the company pays taxes separately for each plant. Tax rates in the various countries are as follows:
Italy, 0.25; Germany, 0.25; Finland, 0.3; UK, 0.2; and Romania, 0.35.
1. After the merger, what is the minimum cost configuration if none of the plants is shut down?
2. After the merger, what is the minimum cost configuration if plants can be shut down (assume that a
shutdown saves 100 percent of the annual fixed cost of the plant)?
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