Consider further the Thor International Company situation described in Problem 19. Thor decides to close F4 because of high operating costs. The logistics manager is worried about the effect of this move on transportation costs. Currently, F4 is shipping 40,000 units to W5 at cost of $80,000 [or 40,000($2)]. If this warehouse were to be served by F1 (currently not being used), the cost would increase to $240,000 [or 40,000(6)]. As a result, the Ajax logistics manager requests a budget increase of $160,000 (or $240,000 – $80,000).

In Problem 19, the Thor International Company operates four factories that ship products to five warehouses. The shipping costs, requirements, and capacities are shown in Figure.

a. Should the logistics manager get the budget increase?

b. If not, how much would you budget for the increase in shipping costs?

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Shipping Cost per Case to each Warehouse Factory Capacity W1 W2 W3 W4 W5 Dummy $2 $3 $3 $2 $6 so F1 50,000 $2 $3 $2 $4 $5 F2 80,000 $2 $4 $4 $3 $2 80,000 F3 SO 40,000 $3 $4 $5 $2 $4 F4 Demand 45,000 30,000 30,000 35,000 50,000 60,000 250,000