Question
To alleviate the strained distribution system, BeeRUS is considering the opening of an additional distribution center. The consideration is for a large (maximum capacity 30,000
To alleviate the strained distribution system, BeeRUS is considering the opening of an additional distribution center. The consideration is for a large (maximum capacity 30,000 bottles), medium (maximum capacity 25,000 bottles) or small (maximum capacity 20,000 bottles) distribution center. The Operations Management team estimated that the predicted demand may change depending on the economic development. At the moment the economy is stagnant. If the economy improves, the team estimates an increase in sales of 15%, however a decrease in sales of 25% if the economy deteriorates even more. There is a probability of 50% that the economy remains as is, while it is 30% likely that it will improve and 20% likely it will get worse. Beer is sold at an average price of $1.80. The operating costs (per bottle) of the additional distribution center are estimated to be $0.70 for the large facility, $0.50 for the medium, and $0.35 for the small facility, respectively (the initial investment is covered by available funds). Furthermore, a marketing firm has offered to run a large promotional campaign, which would cost $2000. The firm promises that the campaign would result in an increase in sale of 25%, regardless of economic situation. For this problem, assume a total predicted demand under the stagnant economy of 23,000 bottles.
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