The plant upgrade option that reduces production run setup costs by 50% each year and costs...

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The plant upgrade option that reduces production run setup costs by 50% each year and costs $8 million per million pairs of plant capacity (which causes depreciation costs at the plant to rise by 5% of the capital cost of the upgrade) merits careful consideration by company managers when they are committed to a long-term strategy to reduce manufacturing costs per pair produced at each of the company's plants to as low a level as possible--lowering the costs for production run setup each year helps achieve this strategic objective. they are committed to keeping the company's 2-million pair plant in North America open for the long-term and the company's strategy calls for this plant to produce 500 models/styles (which entails annual production run setup costs of $12.5 million) every year through Year 20. they are committed to a long-term strategy of producing branded footwear with an S/Q rating of 7-stars or higher at all of the company's plants. the company plans to close the North American plant as soon as it completes the expansion of its plant in the Asia-Pacific to 8 million pairs (no later than Year 14) and when management expects to produce 50 models/styles at this plant through Year 20 (production run setup costs for 50 models/styles are $1 million per year). the company builds a 3 million-pair plant in Europe-Africa in Year 16 and managers expect to produce either 100 or 150 models/styles at the plant in Year 17 through Year 20 (annual production run setup costs are $2.5 million for 100 models and $4 million for 150 models). The plant upgrade option that reduces production run setup costs by 50% each year and costs $8 million per million pairs of plant capacity (which causes depreciation costs at the plant to rise by 5% of the capital cost of the upgrade) merits careful consideration by company managers when they are committed to a long-term strategy to reduce manufacturing costs per pair produced at each of the company's plants to as low a level as possible--lowering the costs for production run setup each year helps achieve this strategic objective. they are committed to keeping the company's 2-million pair plant in North America open for the long-term and the company's strategy calls for this plant to produce 500 models/styles (which entails annual production run setup costs of $12.5 million) every year through Year 20. they are committed to a long-term strategy of producing branded footwear with an S/Q rating of 7-stars or higher at all of the company's plants. the company plans to close the North American plant as soon as it completes the expansion of its plant in the Asia-Pacific to 8 million pairs (no later than Year 14) and when management expects to produce 50 models/styles at this plant through Year 20 (production run setup costs for 50 models/styles are $1 million per year). the company builds a 3 million-pair plant in Europe-Africa in Year 16 and managers expect to produce either 100 or 150 models/styles at the plant in Year 17 through Year 20 (annual production run setup costs are $2.5 million for 100 models and $4 million for 150 models).

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