What are the annual costs for each option

Assignment Help Business Management

Reference no: EM131298463

The Acme Manufacturing Company is concerned about its warehouse needs and how they can be best met. The company produces a line of spare parts for appliances.

Due to the combination of production policies and demand patterns, warehousing space requirements vary considerably throughout the year. Space requirements are known with a great deal of certainty because the product line satisfies a replacement market. Growth, or
decline, in production and sales is not anticipated in the near future. Warehouse inventory turns at the rate of two times per month. A dollar's worth of merchandise occupies 0.1 cubic feet of warehouse space and can be stacked 10 ft. high. The product density is $5 per lb.

Given aisles, administrative space, and normal operating efficiency, only 40 percent of the total warehouse space is actually used for storage. A private warehouse can be constructed and equipped for $35 per sq. ft. and can be amortized over 20 years. The cost of operation is $0.04 per lb of throughput. Annual fixed costs amount to $10 per sq. ft. of total space. Space may also be rented for a storage charge on inventory of $0.06 per lb per month and a handling charge of $0.05 per lb of throughput.

Monthly sales rates for a typical year are as follows:
Month Sales ($)
Jan. 5,000,000
Feb. 4,000,000
Mar. 3,000,000
Apr. 2,000,000
May 1,000,000
June 250,000
July 1,250,000
Aug. 2,250,000
Sept. 3,000,000
Oct. 3,500,000
Nov. 4,000,000
Dec. 4,500,000
Total 33,750,000

Consider the following two options:

(1) Construct a 10,000 sq. ft. of private warehouse and rent public warehouse as needed.

(2) Do not construct a private warehouse, and use only public warehouse. What are the annual costs for each option, and which one has a lower annual cost?

Reference no: EM131298463

Questions Cloud

Why the corn price has risen and ended up being too high : In the market for corn with a price support, explain why the corn price has risen and ended up being too high to "trigger payouts."

Marginal cost of another case within range : The average total cost of operating a surgical room is $700 per case if the volume is 100 cases, and $690 per case if the volume is 110 cases. What is total cost at each of these two volumes? What is the marginal cost of another case within this r..

Difference between risk and uncertainty : What is the difference between risk and uncertainty and how you would consider them in evaluating an investment decision.

Will the tax increase halve the quantity of sunscreen : Will the tax increase halve the quantity of sunscreen and sunglasses bought?

What are the annual costs for each option : Do not construct a private warehouse, and use only public warehouse. What are the annual costs for each option, and which one has a lower annual cost?

United nations human development index ranks : For 196 nations, the United Nations Human Development Index ranks countries by GDP per capita and by "human development" based on health, education, income, and many other categories.

Why are metastatic cancers so difficult to treat : Why are metastatic cancers so difficult to treat? Which theory is more popularly used to explain metastasis today? Give some examples of metastatic cancers that spread according to each theory.

What determines by how much starbucks will raise its price : Suppose that the government imposes a $2 a cup tax on coffee. What determines by how much Starbucks will raise its price? How will the quantity of coffee bought in coffee shops change? Will this tax raise much revenue?

Find a local business and interview the manager : Find out how they treat their overhead (indirect) cost. You should find out what types of indirect costs they have and what % of the company's cost is overhead. How do they allocate their overhead?

User Account

All Pages