Question

Wiebe Trucking. Inc. is planning a new warehouse to serve the west. Denver, Santa Fe, and Salt Lake City are under consideration. For each location, annual fixed costs (rent, equipment. and Insurance) and average variable costs per shipment (labor, transportation and utilities) are listed in the following table. Sales projection is range from 550,000 to 600,000 shipments per year.
a. Plot the total cost curves for all the locations on a single graph.
b. Which city provides the lowest overall costs?

Answer 1

The total cost curve shows the cost of total shipment from the different

cities.

• a. Please find attached the graph of the total cost to quantity of shipment created with MS Excel.

• b. The city that provides the lowest overall cost is; Salt Lake City.

Reasons:

The given parameters are;

The number of shipment per = From 550,000 to 600,000 per year

The given table is presented as follows;

$\begin{tabular}{|l|c|c|c|}Location&Annual Fixed Costs&Variable Cost \\Denver&\ 5,000,000&\ 4.65 \\Santa Fe&\ 4,200,000&\ 6.25\\Salt Lake City&\ 3,500,000&\ 7.25\end{array}\right]$

a. Required:

The plot total cost curve for the locations on a single graph.

Solution:

• Please find attached the graph of the total cost curves created with MS Excel

b. Required:

The city that provides the lowest overall cost.

Solution:

The two cities with the lowest overall costs are Denver and Salt Lake City.

• From the total cost curve, the area under the curves are;

Area under the curve for Denver;

(7557500 + 7790000) ÷ 2 × 50,000 = 383687500000

Area under the curve for Salt Lake City

(7487500 + 7850000) ÷ 2 × 50,000 = 383437500000

Therefore;

• Salt Lake City provides the lowest overall costs.

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