Use the transportation method for location problems and POM Software/Excel spread sheet to find the optimal distribution pattern and the cost of goods sold for your two locations alternatives. First solve the problem with one location as the new plant and then do the same for the second. The unit costs for each cell of the transportation matrix should be the sum of the shipping costs and the variable costs of production.

Data

The following data have been gathered for Tanner:

1. The per-unit shipping cost based on the average ton-mile rates for the most efficient carriers is $100 per mile. The average revenue per product is $3,800,000.00.

2. The company currently has the following capacity constraints:

Table 1: Company current capacity

Location	Capacity
Bortherton	25000
Brizzie	25000
Sacoma	31000

Table 2: New plant information

Alternative	Building and Equipment1,2	Annual Fixed Costs (SGA)1,3	Variable Production Costs/Unit	Land1
Leyfield	$85,000	$5,500	50,000	$2,000
Henderson	$60,000	$7,500	45,000	$1,000

¹Figures are given in thousands.

²Net book value of plant and equipment with remaining depreciable life of 10 years.

³Annual fixed costs do not include depreciation on plant and equipment.

Location Data Given

City	Most likely Demand First Year1	Most Likely Demand After 2-10 years1	Building and Equipment1,2	Annual Fixed Costs (SGA)1,3	Variable Production Costs/Unit	Land1
Bortherton	5000	9000	$70,000	$4,000	38000	400
Brizzie	13000	16000	$90,000	$6,000	30000	700
Sacoma	23000	27000	$80,000	$4,000	33000	500
Henderson	28000	31000
Leyfield	38000	42000

Road Mileage

	Bortherton	Brizzie	Sacoma	Henderson	Leyfield
Bortherton	-	178	187.8	180	218.9
Brizzie	178	-	139.8	151.6	120
Sacoma	187.8	139.8	-	13.2	30
Henderson	180	151.6	13.2	-	45
Leyfield	218.9	117.7	32.7	45.1	-

Other assumptions (if needed)

Terminal value (in 10 years) of the new investment is 50 percent of plant, equipment, and land cost.

The tax rate is 19 percent.

Straight-line depreciation is used for all assets over a 10-year life.

Capacity of the new plant production for the first year will be 31 (000) units.

Capacity of the new plant production thereafter will be 56 (000) units.

Cost of goods sold (COGS) equals variable costs of production plus total transportation costs.

Costs to ship from a plant to its own plant are zero; however, variable production costs are applicable.