Asked by Gargi Patil on Jul 18, 2024
Verified
Use the information from Scenario 6.1 to determine the total (operating and building) cost of the best alternative for a two year period.
A) $2,000,000
B) $1,200,000
C) $2,205,000
D) $2,810,000
Total Cost
The complete sum of all expenses incurred in producing, acquiring, or carrying out an activity or service, including direct, indirect, fixed, and variable costs.
Best Alternative
The most favorable option available to a decision-maker when multiple choices are present.
Operating Costs
Expenses associated with the day-to-day functions of running a business, including costs for rent, utilities, payroll, and materials.
- Determine the best supply chain setups under different demand scenarios.
Verified Answer
JB
JAMECIA BATISTEJul 18, 2024
Final Answer :
C
Explanation :
To determine the best alternative, we need to calculate the expected cost for each choice and choose the one with the lowest expected cost.
For the large facility:
Expected operating cost = (0.7 x $450,000) + (0.3 x $300,000) = $390,000
Total cost = $2,000,000 + $390,000 x 2 = $2,780,000
For the small facility:
Expected operating cost = (0.7 x $600,000) + (0.3 x $275,000) = $457,500
Total cost = $1,200,000 + $457,500 x 2 = $2,115,000
Therefore, the best choice is the small facility with a total cost of $2,115,000.
For the large facility:
Expected operating cost = (0.7 x $450,000) + (0.3 x $300,000) = $390,000
Total cost = $2,000,000 + $390,000 x 2 = $2,780,000
For the small facility:
Expected operating cost = (0.7 x $600,000) + (0.3 x $275,000) = $457,500
Total cost = $1,200,000 + $457,500 x 2 = $2,115,000
Therefore, the best choice is the small facility with a total cost of $2,115,000.
Learning Objectives
- Determine the best supply chain setups under different demand scenarios.