Answer:
1. West Calder should use American since it is the cheapest with a cost of $53,500
2. The range of storage levels would West Calder Fabrication prefer to use Sam Laud is 1,250 to 2,500
Explanation:
1.
Determine the costs of shipping 4,500 units of products for each cargo ship
<em>Step 1: American integrity</em>
Total cost=Annual fixed cost+(cost per unit×number of units)
where;
Annual fixed cost=$40,000
Cost per unit=$3
Number of units=4,500 units
replacing;
Total cost=40,000+(3×4,500)=40,000+13,500=$53,500
American Integrity will cost $53,500
<em>Step 2: Sam Laud</em>
Total cost=Annual fixed cost+(cost per unit×number of units)
where;
Annual fixed cost=$35,000
Cost per unit=$5
Number of units=4,500 units
replacing;
Total cost=35,000+(5×4,500)=35,000+22,500=$57,500
Sam Laud will cost $57,500
<em>Step 3: Bums Harbor</em>
Total cost=Annual fixed cost+(cost per unit×number of units)
where;
Annual fixed cost=$30,000
Cost per unit=$9
Number of units=4,500 units
replacing;
Total cost=30,000+(9×4,500)=30,000+40,500=$70,500
Bums Harbor will cost $70,500
West Calder should use American since it is the cheapest with a cost of $53,500
2.
In order to use Sam Laud, Sam Laud's total cost should be less than or equal to American Integrity's cost.
35,000+5 n=40,000+3 n
40,000-35,000=5 n-3 n
2 n=5,000
n=5,000/2=2,500
n should be less or equal to 2,500
The minimum number of units that should be used in order to use Sam Laud can be determined as follows;
35,000+5 n=30,000+9 n
35,000-30,000=9 n-5 n
4 n=5,000
n=5,000/4=1,250
The range of storage levels would West Calder Fabrication prefer to use Sam Laud is 1,250 to 2,500
