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Due to Increased Sales, a Company Is Considering Building Three

question 1

Multiple Choice

Due to increased sales, a company is considering building three new distribution centers (DCs) to serve four regional sales areas. The annual cost to operate DC 1 is $500 (in thousands of dollars) . The cost to operate DC 2 is $600 (in thousands of dollars.) . The cost to operate DC 3 is $525 (in thousands of dollars) . Assume that the variable cost of operating at each location is the same, and therefore not a consideration in making the location decision.

The table below shows the cost ($ per item) for shipping from each DC to each region.
Region
$\begin{array} { | c | c | c | c | c | } \hline \mathrm { DC } & \mathrm { A } & \mathrm { B } & \mathrm { C } & \mathrm { D } \\\hline 1 & 1 & 3 & 3 & 2 \\\hline 2 & 2 & 4 & 1 & 3 \\\hline 3 & 3 & 2 & 2 & 3 \\\hline\end{array}$ The demand for region A is 70,000 units; for region B, 100,000 units; for region C, 50,000 units; and for region D, 80,000 units. Assume that the minimum capacity for the distribution center will be 500,000 units.
Assume that Xij = quantity shipped from distribution i to region j. i = 1,2,3 and j = 1, 2, 3, 4.
Assume that Yi = 0 or 1 where i = distribution center 1, 2 or 3.
-The constraint for distribution center 1 is:

Definitions:

Intra-entity Purchases

Buying activities of goods or services conducted between departments or divisions within the same entity.

Equity Method

An accounting technique used to assess the profits earned by an investment in another company, recognizing such profits proportional to ownership share.

Intra-entity Purchases

Transactions involving the exchange of goods or services between entities within the same parent company, often leading to consolidation adjustments.

Gross Profit Rate

The ratio of gross profit to net sales, indicating the efficiency of a company in controlling its production or purchase costs.