Requirement for the Year is as follows:

US = 300000

Mexico = 250000

Brazil = 500000

Total = 1050000

Total Cost = Fixed Cost + No of Units( Variable Cost +Shipping Cost)

Lets go Case by Case

1. Produced in US = Fixed Cost is Zero hence only Variable and shipping cost for above units

Cost = Fixed Cost + US Units(Variable Cost + Shipping Cost to US) + Mexico Units(Variable Cost + Shipping Cost to Mexico) + Brazil Units(Variable Cost + Shipping Cost to Brazil)

= 0 + 300000(250+20) + 250000(250+30) + 500000(250+50)

= 81000000 + 70000000 + 150000000

= 301000000 $

2. Produced in Mexico

Cost = Fixed Cost + US Units(Variable Cost + Shipping Cost to US) + Mexico Units(Variable Cost + Shipping Cost to Mexico) + Brazil Units(Variable Cost + Shipping Cost to Brazil)

= 3500000 + 300000(200+25) + 250000(200+20) + 500000(200+50)

= 3500000 + 67500000 + 55000000 + 125000000

= 251000000 $

3. Produced in Brazil

Cost = Fixed Cost + US Units(Variable Cost + Shipping Cost to US) + Mexico Units(Variable Cost + Shipping Cost to Mexico) + Brazil Units(Variable Cost + Shipping Cost to Brazil)

= 5000000 + 300000(200+50) + 250000(200+50) + 500000(200+20)

= 5000000 + 75000000 + 62500000 + 110000000

= 252500000 $

From Above calculation it is clear that producing in the Mexico is Cost Effective.

1. What is the total cost to deliver the demanded air conditioners to all customers under the lowest cost scenario?

A. $262,500,000

B. $252,000,000

C. $251,000,000

D. $239,750,000

E. $239,000,000

F. $229,000,000

Network Planning: Your new efficient air conditioners have been successful in the North American market and now you want to spread them to South America. Your forecasts predict the following demands: the US market will buy 300,000, a 10% increase from last year. You predict that Mexico will buy 250,000, a 20% increase from last year and in Brazil you are confident you can sell 500,000. You can continue to produce in the plant you purchased in the US or you can sub out manufacturing to sub-contractors in Mexico or Brazil The variable cost to produce parts in each region. US $250.00 Mexico or Brazil $200.00 You are anxious to produce at the lowest cost possible to give you the largest margin. The US plant, which you own, can produce as much or as little as you want. And it has no fixed costs because you already own it. Shipped from Brazil Shipped from US Shipped Mexico from Mexico Brazil Capacity Fixed Costs Fixed Costs 500,000 $2,000,000.00 $3,000,000.00 1,000,000 $3,500,000.00 $5,000,000.00 Variable Transportation Costs to ship an Air Conditioner US $25.00 $50.00 Mexico $20.00 $50.00 Brazil $50.00 $20.00 $20.00 $30.00 $50.00