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CHAPTER 5 Case Questions

Small Warehouse Large Wareh

Location Fixed Cost Variable Cost Capacity Number Small Fixed CostSeattle $300,000 0.2 2,000,000 0 $500,000Denver $250,000 0.2 2,000,000 0 $420,000

St. Louis $220,000 0.2 2,000,000 1 $375,000Atlanta $220,000 0.2 2,000,000 0 $375,000Philadelphia $240,000 0.2 2,000,000 0 $400,000

10,000,000 2000000

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle $2.00 $2.50 $3.50 $4.00 $5.00Denver $2.50 $2.50 $2.50 $3.00 $4.00

St. Louis $3.50 $3.50 $2.50 $2.50 $3.00Atlanta $4.00 $4.00 $3.00 $2.50 $3.00Philadelphia $4.50 $5.00 $3.00 $3.50 $2.50

Demand 2007 Demand 2008 Demand 2009 Demand 2010Northwest 320,000 576000 1036800 1866240Southwest 200,000 360000 648000 1166400Upper Midwest 160,000 288000 518400 933120Lower Midwest 220,000 396000 712800 1283040Northeast 350,000 630000 1134000 2041200

Southeast 175,000 315000 567000 1020600Total Demand 1,425,000 2,565,000 4,617,000 8,310,600Total Capacity 2000000

2007

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle 0 0 0 0 0

Denver 0 0 0 0 0St. Louis 320,000 200,000 160,000 220,000 350,000Atlanta 0 0 0 0 0Philadelphia 0 0 0 0 0

320,000 200,000 160,000 220,000 350,000Total Demand 320,000 200,000 160,000 220,000 350,000

1,425,000

Total Shipping Cost $1,108,125.00Total Holding Cost $710,125.00Warehouse Cost $505,000.00Total Shipping Chg $1,068,750.00

TOTAL COST $1,254,500.00

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Variable Cost Capacity Number Large Fixed Cost Variable Cost Total Cost0.2 4,000,000 0 $0 $0.00 $0.000.2 4,000,000 0 $0 $0.00 $0.00

0.2 4,000,000 0 $220,000 $285,000.00 $505,000.000.2 4,000,000 0 $0 $0.00 $0.000.2 4,000,000 0 $0 $0.00 $0.00

20,000,000 0 $505,000.00

Southeast$5.50$4.50

$3.50$2.50$4.00

1,425,000Southeast Total Supply Holding Cost

0 0 - $0.00

0 0 - $0.00175,000 1,425,000 2,000,000 $710,125.00

0 0 - $0.000 0 - $0.00

175,000 $710,125.00175,000

Warehouse Operating Costs

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Small Warehouse Large Wareh

Location Fixed Cost Variable Cost Capacity Number Small Fixed CostSeattle $300,000 0.2 2,000,000 1 $500,000Denver $250,000 0.2 2,000,000 0 $420,000

St. Louis $220,000 0.2 2,000,000 1 $375,000Atlanta $220,000 0.2 2,000,000 0 $375,000Philadelphia $240,000 0.2 2,000,000 0 $400,000

10,000,000 4000000

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle $2.00 $2.50 $3.50 $4.00 $5.00Denver $2.50 $2.50 $2.50 $3.00 $4.00

St. Louis $3.50 $3.50 $2.50 $2.50 $3.00Atlanta $4.00 $4.00 $3.00 $2.50 $3.00Philadelphia $4.50 $5.00 $3.00 $3.50 $2.50

Demand 2007 Demand 2008 Demand 2009 Demand 2010Northwest 320,000 576000 1036800 1866240Southwest 200,000 360000 648000 1166400Upper Midwest 160,000 288000 518400 933120Lower Midwest 220,000 396000 712800 1283040Northeast 350,000 630000 1134000 2041200

Southeast 175,000 315000 567000 1020600Total Demand 1,425,000 2,565,000 4,617,000 8,310,600Total Capacity 4000000

2008

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle 576,000 360,000 0 0 0

Denver 0 0 0 0 0St. Louis 0 0 288,000 396,000 630,000Atlanta 0 0 0 0 0Philadelphia 0 0 0 0 0

576,000 360,000 288,000 396,000 630,000Total Demand 576,000 360,000 288,000 396,000 630,000

2,565,000

Total Shipping Cost $1,688,625.00Total Holding Cost $1,373,225.00Warehouse Cost $1,033,000.00Total Shipping Chg $1,923,750.00

TOTAL COST $2,171,100.00

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Variable Cost Capacity Number Large Fixed Cost Variable Cost Total Cost0.2 4,000,000 0 $300,000 $187,200.00 $487,200.000.2 4,000,000 0 $0 $0.00 $0.00

0.2 4,000,000 0 $220,000 $325,800.00 $545,800.000.2 4,000,000 0 $0 $0.00 $0.000.2 4,000,000 0 $0 $0.00 $0.00

20,000,000 0 $1,033,000.00

Southeast$5.50$4.50

$3.50$2.50$4.00

2,565,000Southeast Total Supply Holding Cost

0 936,000 2,000,000 $629,440.00

0 0 - $0.00315,000 1,629,000 2,000,000 $743,785.00

0 0 - $0.000 0 - $0.00

315,000 $1,373,225.00315,000

Warehouse Operating Costs

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Small Warehouse Large Wareh

Location Fixed Cost Variable Cost Capacity Number Small Fixed CostSeattle $300,000 0.2 2,000,000 1 $500,000Denver $250,000 0.2 2,000,000 0 $420,000

St. Louis $220,000 0.2 2,000,000 1 $375,000Atlanta $220,000 0.2 2,000,000 1 $375,000Philadelphia $240,000 0.2 2,000,000 0 $400,000

10,000,000 6000000

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle $2.00 $2.50 $3.50 $4.00 $5.00Denver $2.50 $2.50 $2.50 $3.00 $4.00

St. Louis $3.50 $3.50 $2.50 $2.50 $3.00Atlanta $4.00 $4.00 $3.00 $2.50 $3.00Philadelphia $4.50 $5.00 $3.00 $3.50 $2.50

Demand 2007 Demand 2008 Demand 2009 Demand 2010Northwest 320,000 576000 1036800 1866240Southwest 200,000 360000 648000 1166400Upper Midwest 160,000 288000 518400 933120Lower Midwest 220,000 396000 712800 1283040Northeast 350,000 630000 1134000 2041200

Southeast 175,000 315000 567000 1020600Total Demand 1,425,000 2,565,000 4,617,000 8,310,600Total Capacity 6,000,000

1,383,000 GAP 1

2009

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle 1,036,800 648,000 0 0 0

Denver 0 0 0 0 0St. Louis 0 0 518,400 497,096 984,504Atlanta 0 0 0 215,704 149,496Philadelphia 0 0 0 0 0

1,036,800 648,000 518,400 712,800 1,134,000Total Demand 1,036,800 648,000 518,400 712,800 1,134,000

4,617,000

Total Shipping Cost $2,897,775.00Total Holding Cost $2,186,805.00Warehouse Cost $1,663,400.00Total Shipping Chg $3,462,750.00

TOTAL COST $3,285,230.00

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Variable Cost Capacity Number Large Fixed Cost Variable Cost Total Cost0.2 4,000,000 0 $300,000 $336,960.00 $636,960.000.2 4,000,000 0 $0 $0.00 $0.00

0.2 4,000,000 0 $220,000 $400,000.00 $620,000.000.2 4,000,000 0 $220,000 $186,440.00 $406,440.000.2 4,000,000 0 $0 $0.00 $0.00

20,000,000 0 $1,663,400.00

Southeast$5.50$4.50

$3.50$2.50$4.00

4,617,000Southeast Total Supply Holding Cost

0 1,684,800 2,000,000 $752,992.00

0 0 - $0.000 2,000,000 2,000,000 $805,000.00

567,000 932,200 2,000,000 $628,813.000 0 - $0.00

567,000 $2,186,805.00567,000

Warehouse Operating Costs

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Small Warehouse Large Wareh

Location Fixed Cost Variable Cost Capacity Number Small Fixed CostSeattle $300,000 0.2 2,000,000 1 $500,000Denver $250,000 0.2 2,000,000 1 $420,000

St. Louis $220,000 0.2 2,000,000 1 $375,000Atlanta $220,000 0.2 2,000,000 1 $375,000Philadelphia $240,000 0.2 2,000,000 1 $400,000

10,000,000 10000000

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle $2.00 $2.50 $3.50 $4.00 $5.00Denver $2.50 $2.50 $2.50 $3.00 $4.00

St. Louis $3.50 $3.50 $2.50 $2.50 $3.00Atlanta $4.00 $4.00 $3.00 $2.50 $3.00Philadelphia $4.50 $5.00 $3.00 $3.50 $2.50

Demand 2007 Demand 2008 Demand 2009 Demand 2010Northwest 320,000 576000 1036800 1866240Southwest 200,000 360000 648000 1166400Upper Midwest 160,000 288000 518400 933120Lower Midwest 220,000 396000 712800 1283040Northeast 350,000 630000 1134000 2041200

Southeast 175,000 315000 567000 1020600Total Demand 1,425,000 2,565,000 4,617,000 8,310,600Total Capacity 10,000,000

1,689,400 GAP

2010

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle 1,866,240 116,640 0 0 0

Denver 0 1,049,760 933,120 0 0St. Louis 0 0 0 1,283,040 41,200Atlanta 0 0 0 0 0Philadelphia 0 0 0 0 2,000,000

1,866,240 1,166,400 933,120 1,283,040 2,041,200Total Demand 1,866,240 1,166,400 933,120 1,283,040 2,041,200

8,310,600

Total Shipping Cost $4,965,995.00Total Holding Cost $3,746,249.00Warehouse Cost $2,892,120.00Total Shipping Chg $6,232,950.00

TOTAL COST $5,371,414.00

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Variable Cost Capacity Number Large Fixed Cost Variable Cost Total Cost0.2 4,000,000 0 $300,000 $396,576.00 $696,576.000.2 4,000,000 0 $250,000 $396,576.00 $646,576.00

0.2 4,000,000 0 $220,000 $264,848.00 $484,848.000.2 4,000,000 0 $220,000 $204,120.00 $424,120.000.2 4,000,000 0 $240,000 $400,000.00 $640,000.00

20,000,000 - $2,892,120.00

Southeast$5.50$4.50

$3.50$2.50$4.00

8,310,600Southeast Total Supply Holding Cost

0 1,982,880 2,000,000 $802,175.20

0 1,982,880 2,000,000 $802,175.200 1,324,240 2,000,000 $693,499.60

1,020,600 1,020,600 2,000,000 $643,399.000 2,000,000 2,000,000 $805,000.00

1,020,600 $3,746,249.001,020,600

Warehouse Operating Costs

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Small Warehouse Large Wareh

Location Fixed Cost Variable Cost Capacity Number Small Fixed CostSeattle $300,000 0.2 2,000,000 0 $500,000Denver $250,000 0.2 2,000,000 0 $420,000

St. Louis $220,000 0.2 2,000,000 0 $375,000Atlanta $220,000 0.2 2,000,000 0 $375,000Philadelphia $240,000 0.2 2,000,000 0 $400,000

10,000,000 0

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle $2.00 $2.50 $3.50 $4.00 $5.00Denver $2.50 $2.50 $2.50 $3.00 $4.00

St. Louis $3.50 $3.50 $2.50 $2.50 $3.00Atlanta $4.00 $4.00 $3.00 $2.50 $3.00Philadelphia $4.50 $5.00 $3.00 $3.50 $2.50

Demand 2007 Demand 2008 Demand 2009 Demand 2010Northwest 320,000 576000 1036800 1866240Southwest 200,000 360000 648000 1166400Upper Midwest 160,000 288000 518400 933120Lower Midwest 220,000 396000 712800 1283040Northeast 350,000 630000 1134000 2041200

Southeast 175,000 315000 567000 1020600Total Demand 1,425,000 2,565,000 4,617,000 8,310,600Total Capacity 4000000

2008

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle 0 0 0 0 0

Denver 0 0 0 0 0St. Louis 576,000 360,000 288,000 396,000 630,000Atlanta 0 0 0 0 0Philadelphia 0 0 0 0 0

576,000 360,000 288,000 396,000 630,000Total Demand 576,000 360,000 288,000 396,000 630,000

2,565,000

Total Shipping Cost $1,994,625.00Total Holding Cost $898,225.00Warehouse Cost $888,000.00Total Shipping Chg $1,923,750.00

TOTAL COST $1,857,100.00

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Variable Cost Capacity Number Large Fixed Cost Variable Cost Total Cost0.2 4,000,000 0 $0 $0.00 $0.000.2 4,000,000 0 $0 $0.00 $0.00

0.2 4,000,000 1 $375,000 $513,000.00 $888,000.000.2 4,000,000 0 $0 $0.00 $0.000.2 4,000,000 0 $0 $0.00 $0.00

20,000,000 4000000 $888,000.00

Southeast$5.50$4.50

$3.50$2.50$4.00

2,565,000Southeast Total Supply Holding Cost

0 0 - $0.00

0 0 - $0.00315,000 2,565,000 4,000,000 $898,225.00

0 0 - $0.000 0 - $0.00

315,000 $898,225.00315,000

Warehouse Operating Costs

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Small Warehouse Large Wareh

Location Fixed Cost Variable Cost Capacity Number Small Fixed CostSeattle $300,000 0.2 2,000,000 0 $500,000Denver $250,000 0.2 2,000,000 0 $420,000

St. Louis $220,000 0.2 2,000,000 1 $375,000Atlanta $220,000 0.2 2,000,000 0 $375,000Philadelphia $240,000 0.2 2,000,000 0 $400,000

10,000,000 2000000

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle $2.00 $2.50 $3.50 $4.00 $5.00Denver $2.50 $2.50 $2.50 $3.00 $4.00

St. Louis $3.50 $3.50 $2.50 $2.50 $3.00Atlanta $4.00 $4.00 $3.00 $2.50 $3.00Philadelphia $4.50 $5.00 $3.00 $3.50 $2.50

Demand 2007 Demand 2008 Demand 2009 Demand 2010Northwest 320,000 576000 1036800 1866240Southwest 200,000 360000 648000 1166400Upper Midwest 160,000 288000 518400 933120Lower Midwest 220,000 396000 712800 1283040Northeast 350,000 630000 1134000 2041200

Southeast 175,000 315000 567000 1020600Total Demand 1,425,000 2,565,000 4,617,000 8,310,600Total Capacity 6000000

2009

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle 0 0 0 0 0

Denver 0 0 0 0 0St. Louis 1,036,800 648,000 518,400 712,800 1,134,000Atlanta 0 0 0 0 0Philadelphia 0 0 0 0 0

1,036,800 648,000 518,400 712,800 1,134,000Total Demand 1,036,800 648,000 518,400 712,800 1,134,000

4,617,000

Total Shipping Cost $3,590,325.00Total Holding Cost $2,473,610.00Warehouse Cost $1,518,400.00Total Shipping Chg $3,462,750.00

TOTAL COST $4,119,585.00

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Variable Cost Capacity Number Large Fixed Cost Variable Cost Total Cost0.2 4,000,000 0 $0 $0.00 $0.000.2 4,000,000 0 $0 $0.00 $0.00

0.2 4,000,000 1 $595,000 $923,400.00 $1,518,400.000.2 4,000,000 0 $0 $0.00 $0.000.2 4,000,000 0 $0 $0.00 $0.00

20,000,000 4000000 $1,518,400.00

Southeast$5.50$4.50

$3.50$2.50$4.00

4,617,000Southeast Total Supply Holding Cost

0 0 - $0.00

0 0 - $0.00567,000 4,617,000 6,000,000 $2,473,610.00

0 0 - $0.000 0 - $0.00

567,000 $2,473,610.00567,000

Warehouse Operating Costs

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Small Warehouse Large Wareh

Location Fixed Cost Variable Cost Capacity Number Small Fixed CostSeattle $300,000 0.2 2,000,000 0 $500,000Denver $250,000 0.2 2,000,000 0 $420,000

St. Louis $220,000 0.2 2,000,000 1 $375,000Atlanta $220,000 0.2 2,000,000 0 $375,000Philadelphia $240,000 0.2 2,000,000 0 $400,000

10,000,000 2000000

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle $2.00 $2.50 $3.50 $4.00 $5.00Denver $2.50 $2.50 $2.50 $3.00 $4.00

St. Louis $3.50 $3.50 $2.50 $2.50 $3.00Atlanta $4.00 $4.00 $3.00 $2.50 $3.00Philadelphia $4.50 $5.00 $3.00 $3.50 $2.50

Demand 2007 Demand 2008 Demand 2009 Demand 2010Northwest 320,000 576000 1036800 1866240Southwest 200,000 360000 648000 1166400Upper Midwest 160,000 288000 518400 933120Lower Midwest 220,000 396000 712800 1283040Northeast 350,000 630000 1134000 2041200

Southeast 175,000 315000 567000 1020600Total Demand 1,425,000 2,565,000 4,617,000 8,310,600Total Capacity 10000000

2010

Northwest Southwest Upper Midwest Lower Midwest NortheastSeattle 0 0 0 0 0

Denver 0 0 0 0 0St. Louis 1,866,240 1,166,400 933,120 1,283,040 2,041,200Atlanta 0 0 0 0 0Philadelphia 0 0 0 0 0

1,866,240 1,166,400 933,120 1,283,040 2,041,200Total Demand 1,866,240 1,166,400 933,120 1,283,040 2,041,200

8,310,600

Total Shipping Cost $6,462,585.00Total Holding Cost $5,538,747.00Warehouse Cost $2,632,120.00Total Shipping Chg $6,232,950.00

TOTAL COST $8,400,502.00

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Variable Cost Capacity Number Large Fixed Cost Variable Cost Total Cost0.2 4,000,000 0 $0 $0.00 $0.000.2 4,000,000 0 $0 $0.00 $0.00

0.2 4,000,000 2 $970,000 $1,662,120.00 $2,632,120.000.2 4,000,000 0 $0 $0.00 $0.000.2 4,000,000 0 $0 $0.00 $0.00

20,000,000 8,000,000 $2,632,120.00

Southeast$5.50$4.50

$3.50$2.50$4.00

8,310,600Southeast Total Supply Holding Cost

0 0 - $0.00

0 0 - $0.001,020,600 8,310,600 10,000,000 $5,538,747.00

0 0 - $0.000 0 - $0.00

1,020,600 $5,538,747.00 Total Holding1,020,600

Warehouse Operating Costs