You are the Director of Supply Chain Management for Rencor Manufacturing in Tucson, Arizona. Rencor supplies a key component for automobile interiors to U.S. assembly plants across the country. The components can be manufactured in China or Mexico. Unit cost in China is $333 and in Mexico, it is $350. However, shipping costs per 500 units are $10,000 from China and only $2,000 from Mexico; these prices are expected to increase 4% each month from China and 1% each month from Mexico. Each unit is sold to the automotive customer for $400. Contracts with the Chinese vendor require that a minimum of 2,500 units be produced each month. Rencor's demand for the next 12 months is estimated to be as follows:

Month Demand January 14,000 February 16,000 March 14,000 April 14,000 May 16,000 June 10,500 July 14,000 August 20,000 September 20,000 October 16,000 November 14,000 December 10,500\fFigure 1 Shipping Cost Plant Cost/Unit per 500 units Sale Price China $333 $10,0 00 $400 Mexico $350 $2 000 Month January February March April May June July August September October November December Customer Demand 14000 18000 140 00 14000 18000 1050 0 14000 20 000 20000 18000 14000 10500 Minimum in China 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 Mexican Plant Capacity 2500 50 00 7500 10000 12500 15000 15000 15000 15000 15000 15000 Shipping Cost China $20 $20.80 $21.83 $22.50 $23.40 $24.33 $25.31 $28.32 $2737 $28.47 $29 80 $30.79 Shipping Cost Mexico $4 $404 $4.08 $4.12 $4.18 $420 $4.25 $4.29 $4.33 $4.37 $4.42 $4.46 Total Unit Cost China $353.00 $353.80 $354.83 $355.50 $358.40 $357.33 $358.31 $359.32 $380.37 5381.47 5382 80 5383.79 Total Unit Cost Mexico $354.00 $35404 $354.08 $354.12 $354.18 $35420 $354.25 $354.29 $354.33 $354.37 $354.42 $354.48 Produced in China 14000 18000 9000 8500 8000 2500 2500 5000 5000 2500 2500 2500 Produced in Mexico 5000 7500 10000 800 0 11500 15000 15000 13500 11500 8000 Total Production 14000 18000 140 00 14000 18000 1050 0 14000 20 000 20000 18000 14000 10500 Production Cost China $4,862.000 $5 328,000 $2,997.000 $2,184,500 $1,998,000 $832,500 $832 500 $1,885,000 $1,885.000 $832 500 $832.500 $832,500 Shipping Cost China $280,000 $332 ,800 $194886 $146 232 $140,383 $80.83 3 58 3.268 $131,593 $136 857 $71,186 574,012 $76 ,973 Production Cost Mexico 90 $1,750 000 $2,825,000 $3,500,000 $2,800,000 $4,025.000 $5 250,000 $5250,000 $4,725.000 $4025,000 $2.800,000 Shipping Cost Mexico 50 $20.402 $30,909 $41.824 $33.832 $48 830 584,328 $84 971 $59 059 $50,813 $35,701 Total Cost $4,942,000 $5 860 ,800 $4,982 090 $4,968,841 $5680,007 $3,728,985 $4,989 596 57,110,921 $7,116 828 $5 ,887 725 54,982,325 $3,745,174 Revenue $5 800 000 98 400 000 $5 800 000 $5 800 000 98 400.000 $4 200 00 $5 800 000 58 000.000 $8,000 000 $8 400 000 35 800.000 34 200,000 Total Profit 38 58 000 $739 200 $837 910 $833,359 $719,993 $473,035 $830 404 $889,079 $883,172 $712 275 $817,875 $454 ,826 $8,048,927