Consider further the Ajax International Company situation described in Problem 25. Ajax decides to close F3 because of high operating costs. In addition, the company decides to add 50,000 (1 units of capacity to F4. The logistics manager is worried about the effect of this move on transportation costs. Currently F3 is shipping 30,000 units to W4 and 50,000 units to W5 at a cost of $140,000 (or 30,000(3) + 50,000(l)). If these warehouses were to be served by F4, the cost would increase to $350,000 or 30,000(5) + 50,000(4)]. As a result, the Ajax logistics manager requests a budget increase of $210000 (or$350,000-$l40.000).
a. Should the logistics manager get the budget increase?
b. If not how much would you budget for the increase in shipping costs?