Question one: If you were Skip Grenoble, which alternative would you advise Jim Brierley to implement? What criteria would you use to arrive at your decision?

The adequate option for long$-$term sustainability will be to use Ocean freight because once the $2\mathrm{.}95$ million lb$.$ threshold is met, it will become more cost$-$effective than air freight. If the information provided about the $5\%$ increase in demand per year is accurate, the cost of utilizing the ocean freight will drop around the third year of use. The company could still utilize air freight for the first two years to minimize costs, but once the third year comes, the change to ocean freight should be implemented as long the costs associated with switching are not remarkable.

Question Two: At what level of demand $($in pounds$)$ per year would these two alternatives be equal?

Air: Total Cost$-$Fixed Cost $=$ Variable Cost $(800,000-450,000=350,000)$

Variable Cost$/$Unites$-$$$350,000/2\mathrm{.}5$ million lbs$.=$$$0\mathrm{.}14/$lb$.$

Equation:$450,000+\mathrm{.}14($x$=$ demand in pounds$)$

Ocean: Total Cost$-$Fixed Cost $=$ Variable Cost $($$$823,000-$$$600,000=$$$223,000)$

Variable Cost$/$Units $=$ $$223,000/2\mathrm{.}5$ million lbs$.=$$$0\mathrm{.}0892/$lb$.$

Equation: $600,000+\mathrm{.}0892$x $($demand in pounds$)$

$450,000+\mathrm{.}14$x $=600,000+\mathrm{.}0892$x $($solve for x$)$

X$=2,952,756$ lbs$.$ They will cost the same when the demand reaches $2,952,756$ lbs$.$

Question Three: Graphically represent these two alternatives and their tradeoff point.

Question Four: Which alternative would you recommend be in place to accommodate future demand growth? What would be the advantages and disadvantages of producing the component parts in China and shipping them to the United States for assembly before sale to customers? To combat future demand growth, an option to be considered is to increment the stock levels. This preventive measure will ensure enough resources to continue production are available and meet customer demands. Producing the components in China is more cost$-$efficient due to the lower labor and material costs, and by shipping to the United States for assembly, the company can also save on shipping costs. The bad side is that it will take longer for the product to reach the customer due to longer wait times for transportation and production or the product being damaged during transport.