Andrew–Carter, Inc. (A–C), is a major Canadian producer and distributor of outdoor lighting fixtures. Its fixture is distributed throughout North America and has been in high demand for several years. The company operates three plants that manufacture the fixture and distribute it to five distribution centers (warehouses). During the present recession, A–C has seen a major drop in demand for its fixture as the housing market has declined. Based on the forecast of interest rates, the head of operations feels that demand for housing and thus for its product will remain depressed for the foreseeable future. A–C is considering closing one of its plants, as it is now operating with a forecasted excess capacity of 34,000 units per week. 

The forecasted weekly demands for the coming year are Warehouse 1 9,000 units Warehouse 2 13,000 units Warehouse 3 11,000 units Warehouse 4 15,000 units Warehouse 5 8,000 units 

The plant capacities in units per week are 

Plant 1, regular time 27,000 units 

Plant 1, on overtime 7,000 units 

Plant 2, regular time 20,000 units 

Plant 2, on overtime 5,000 units Plant 3, regular time 25,000 units 

Plant 3, on overtime 6,000 units If A–C shuts down any plants, its weekly costs will change, as fixed costs are lower for a nonoperating plant. 

Table 9.34 shows production costs at each plant, both variable at regular time and overtime, and fixed when operating and shut down. 

Table 9.35 shows distribution costs from each plant to each warehouse (distribution center)

 

1. Evaluate the various configurations of operating and closed plants that will meet weekly demand. Determine which configuration minimizes total costs. 

2. Discuss the implications of closing a plant. 

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TABLE 9.34 FIXED COST PER WEEK Andrew-Carter, Inc., Variable Costs and Fixed PLANT VARIABLE COST OPERATING NOT OPERATING Production Costs per Week No. 1, regular time $2.80/unit $14,000 $6,000 No. 1, overtime 3.52 No. 2, regular time 2.78 12,000 5,000 No. 2, overtime 3.48 No. 3, regular time 2.72 15,000 7,500 No. 3, overtime 3.42 TABLE 9.35 TO DISTRIBUTION CENTER Andrew-Carter, Inc., Distribution Costs FROM PLANT Wi W2 W3 W4 W5 per Unit No. 1 $0.50 $0.44 $0.49 $0.46 $0.56 No. 2 0.40 0.52 0.50 0.56 0.57 No. 3 0.56 0.53 0.51 0.54 0.35 TABLE 9.34 FIXED COST PER WEEK Andrew-Carter, Inc., Variable Costs and Fixed PLANT VARIABLE COST OPERATING NOT OPERATING Production Costs per Week No. 1, regular time $2.80/unit $14,000 $6,000 No. 1, overtime 3.52 No. 2, regular time 2.78 12,000 5,000 No. 2, overtime 3.48 No. 3, regular time 2.72 15,000 7,500 No. 3, overtime 3.42 TABLE 9.35 TO DISTRIBUTION CENTER Andrew-Carter, Inc., Distribution Costs FROM PLANT Wi W2 W3 W4 W5 per Unit No. 1 $0.50 $0.44 $0.49 $0.46 $0.56 No. 2 0.40 0.52 0.50 0.56 0.57 No. 3 0.56 0.53 0.51 0.54 0.35

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Total Capacity Regular of the AC Inc 27000 20000 25000 72000 units Given that the organisation has excess capacity of 34000 units Therefore current de... View the full answer