he Apple-of-Your-Eye Automobile Company, Inc. The Company makes very customized, hand-made automobiles. The company has three factoriesin India, Germany, and Hong Kong--any of which can ship to any of the Companys three marketsthe US, Germany, and Japan. Demand for these products which are very expensive is expected to be only 140 units this year, with the US at 50 units, Germany at 60 units, and Japan at 30 units. Each of the three factories can operate at either of two modes- low capacity of 30 units per year or high capacity of 50 units. The India factory if open at low capacity has a cash fixed cost of $1,500,000, and $2,000,000 if open at high capacity. The German factory if open at low capacity has a cash fixed cost of $1,600,000, and $2,200,000 if open at high capacity. The Hong Kong factory if open at low capacity has a cash fixed cost of $1,400,000, and $1,800,000 if open at high capacity. The delivered variable costs per unit for each factory to each market are as follows: Market Factory US Germany Japan India $270,000 $290,000 $300,000 Germany 290,000 260,000 290,000 Hong Kong 290,000 270,000 260,000 The Company wants to know how to allocate the 140 units of production among its three factories in order to achieve the lowest total cash costs* this year and whether these factories need to operate at low or high capacity. Note: in preparing a spreadsheet, express all $ amounts in thousands to save entering (and reading) many zeros. *the company, in allocating this production among its three factories, is going to consider only variable costs and cash fixed costs ( ie. cash outlays associated with keeping a factory open) . There are some other truly fixed costs which are allocations of fixed overhead which the company will incur whether a factory is open or closed for the year. They are excluded from this analysis.

Apple-of-Your-Eye Auto Company Inputs--Costs, Capacities, Demands Cash Fixed Costs ($K) Low Cash Fixed Costs High Demand Region Variable costs ($K) per unit Low capacity Capacity (units) High Capacity Capacity (units) Supply Region US Germany Japan India Germany Hong Kong Demand (M units) Decision Variables Demand Region Low Capacity High Capacity Supply Region US Germany Japan (1=Open) (1=Open) India Germany Hong Kong Constraints Supply Region Excess capacity India Germany Hong Kong US Germany Japan Unmet Demand Objective function Total Cost