Your company produces and sells drugs at several different locations. The decision about where to produce goods for each sales location can have a huge impact on profitability. The model here is like the model used in this chapter to determine where drugs should be produced. Use the following assumptions:

You produce drugs at six locations and sell to customers in six different areas.

The tax rate and variable production cost depend on the location where the drug is produced. For example, any units produced at Location 3 cost $6 per unit to produce; profits from these goods are taxed at 20 percent.

The sales price of each drug depends on where the drug is sold. For example, each product sold in Location 2 is sold for $40.

Each of the six plants can produce up to 6 million units per year.

The annual demand (in millions) for your product in each location is as follows:

The unit shipping cost depends on the plant where the product is produced and the location where the product is sold, as you see in this table:

For example, if you produce a unit at Plant 1 and sell it in Location 3, it costs $5 to ship it. How can you maximize the after-tax profit with your limited production capacity?

Transcribed Image Text:

Production location Sales price Tax rate Variable production cost 1 2 3 $45 $40 31% 40% $8 $38 4 5 6 $7 $6 $36 20% 40% $9 $39 35% $34 18% $7 $7