Solutions Plus is an industrial chemicals company that produces specialized cleaning fluids and solvents for a wide variety of applications. Solutions Plus just received an invitation to submit a bid to supply Great North American railroad with a cleaning fluid for locomotives. Great North American needs the cleaning fluid at 11 locations (railway stations); it provided the following information to Solutions Plus regarding the number of gallons of cleaning fluid required at each location.
Solutions Plus can produce the cleaning fluid at its Cincinnati plant for $1.20 per gallon. Even though the Cincinnati location is its only plant, Solutions Plus has negotiated with an industrial chemicals company located in Oakland, California, to produce and ship up to 50,000 gallons of the locomotive cleaning fluid to selected Solutions Plus customer locations. The Oakland Company will charge Solutions Plus $1.65 per gallon to produce the cleaning fluid, but Solutions Plus thinks that the lower shipping costs from Oakland to some customer locations may offset the added cost to produce the product.
TABLE (a)
GALLONS OF CLEANING FLUID REQUIRED AT EACH LOCATION


TABLE (b)
FREIGHT COST ($ PER GALLON)


Managerial Report
You are asked to make recommendations that will help Solutions Plus prepare a bid. Your report should address, but not be limited to, the following issues:
1. If Solutions Plus wins the bid, which production facility (Cincinnati or Oakland) should supply the cleaning fluid to the locations where the railroad locomotives are cleaned? How much should be shipped from each facility to each location?
2. What is the breakeven point for Solutions Plus? That is, how low can the company go on its bid without losing money?
3. If Solutions Plus wants to use its standard 15% markup, how much should it bid?
4. Freight costs are significantly affected by the price of oil. The contract on which Solutions Plus is bidding is for two years. Discuss how fluctuation in freight costs might affect the bid Solutions Plussubmits.
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August 3, 2012

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