Balaji Limited manufactures and markets spare parts for agricultural machineries, which it stocks in various warehouses throughout the country. Most of the machineries it supports are reaching the end of their warranty periods and the company is expecting an increase in demand for spare parts. Its market research group compiled a forecast indicating an additional demand of 20,000 units. The company has decided to satisfy this demand by constructing new plant capacity. Balaji already has plants in Chennai and Delhi and has no desire to relocate those facilities. Each plant is capable of producing 690,000 units per year. After a thorough search, the company has been presented with two alternatives. Alternative 1 is to build a plant in Coimbatore that can fulfil all additional demand. Alternative 2 is to split the demand by building two plants at two locations: Coimbatore and Bangalore. The company's warehouses distribute the product to retailers. The market research study provided the following data.

The logistics department compiled the following cost table specifying the cost per unit to ship the product from each plant to each warehouse in the most economical manner, subject to the reliability of the various carriers involved.

As one part of the location decision, management wants an estimate of the total distribution cost for each alternative. Use the transportation method to calculate these estimates.

Transcribed Image Text:

Warehouse Srinagar Bhopal Hyderabad Madurai Expected Annual Demand 100,000 450,000 750,000 800,000