5. Nancy Andrews is president of the Andrews Electronic Company, which assembles pocket calculators and minicomputers. The company currently has plants in Los Angeles, California, and Richmond, Virginia. Ms. Andrews is evaluating the merits of opening a third plant in a more central part of the United States. She wishes to compare Denver and Omaha as potential locations.

Up to 1,000 units of raw material each month can be obtained from any of three locations: Oakland, Dallas, and Minneapolis. The monthly requirements for each of the present and potential locations are given in the following table along with the combined cost to purchase a unit of raw material at a specified source and ship it to the indicated plant location.

a. Decide whether the selection of Denver or Omaha would minimize the company’s total cost of obtaining raw materials.

b. How much will these costs be if Denver is selected? If Omaha is selected?

c. What other factors do you think should be considered in reaching the decision?

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Cost per Unit at Destination TOTAL UNITS AVAILABLE SOURCE OF AT MATERIALS LOS ANGELES DENVER OMAHA RICHMOND SOURCE Oakland $6 $9 $10 $12 1,000 Dallas 9 8 7 8 1,000 Minneapolis 11 9 7 9 1,000 Requirements 600 550 550 500