Which of the new locations, in combination with the existing plants and distribution centers, yields a lower cost for the firm?
Williams Auto Top Carriers currently maintains plants in Atlanta and Tulsa to supply auto top carriers to distribution centers in Los Angeles and New York. Because of expanding demand, Williams has decided to open a third plant and has narrowed the choice to one ot two cities – New Orleans and Houston. Table below provides pertinent production and distribution costs as well as plant capacities and distribution demands.
Which of the new locations, in combination with the existing plants and distribution centers, yields a lower cost for the firm?
|
From Plants |
To Distribution centers |
Normal production |
Unit production cost |
|
|
Los Angeles |
New York |
|||
|
Existing plants Atlanta Tulsa |
$8 $4 |
$5 $7 |
600 900 |
$6 $5 |
|
Proposed locations New Orleans Houston |
$5 $4 |
$6 $6a |
500 500 |
$4 (anticipated) $3 (anticipated) |
|
|
800 |
1,200 |
2,000 |
|
a – Indicates distribution cost (shipping, handling, storage) will be $6 per carrier between Houston and New York
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