Statistic Problems
1)
Levinson Foods is in the process of expanding its distribution system. After some planned
acquisitions, the company will have ten regional centers, with monthly volumes (in cartons) as
listed below. Six of these sites currently act as warehouses, shipping to other regional centers and
these are designated by (W).
Center Albq.
(W)
Boise Dallas
(W)
Denver
(W)
Houston
(W)
OKC Phoenix
(W)
SLC SanAnt.
(W)
Wichita
Volume 3,200 2,500 6,800 4,000 9,600 3,500 5,000 1,800 7,400 2,700
Because these properties have been acquired under different circumstances, Levinson Food is
considering if they were to keep all of these warehouses or change the distribution plan. The
monthly capacities and monthly operating costs are summarized as follows:
Current Warehouses Capacity Fixed Operating Cost
Albuquerque 16,000 $140,000
Dallas 20,000 $150,000
Denver 10,000 $100,000
Houston 10,000 $110,000
Phoenix 12,000 $125,000
San Antonio 10,000 $120,000
Information, compiled showing the cost per carton of shipping from each warehouse to any
regional center in the system, is shared under the Excel template.
a) Assuming that all of the six warehouses stay open,
determine the distribution
plan and its corresponding cost.
b) If some warehouses could be closed, what would be
the cost minimizing new
distribution plan?
c) Discuss the differences in solutions from part (a) and
part (b). What are
implications?
2)
Majestic Enterprises is considering a investing $160 million for capital projects this year.
The managers have examined various possibilities and have proposed five projects to
consider. The projects cover a variety of activities, as listed below:
P1: Implement a new information system.
P2: License a new technology from another firm.
P3: Build a state-of-the-art recycling facility.
P4: Install an automated machining center in production.
P5: Move the receiving department to new facilities on site.
There is just one project of each type. Each project has an estimated net present value (NPV)
and each requires a capital expenditure, which must come out of the allocated budget. The
following table summarizes the possibilities, with all figures in millions of dollars:
Projects
P1 P2 P3 P4 P5
NPV 10 17 16 8 14
Expenditure 48 96 80 32 64
The committee would like to maximize the total NPV from projects selected, subject to the
budget limit of $160 million.
a) Determine which projects should be selected to maximize the total NPV.
b) If at most one of Project 3 and Project 4 can be selected AND Project 4 requires
Project 5, how does your solution from part a change? interpret the impact of these
changes on your solution.
