Question

Aire-Co produces home dehumidifiers at two different plants in Atlanta and Phoenix. The per unit cost of production in Atlanta and Phoenix is $400 and $360, respectively. Each plant can produce a maximum of 300 units per month. Inventory holding costs are assessed at $30 per unit in beginning inventory each month. Aire-Co estimates the demand for its product to be 300, 400, and 500 units, respectively, over the next three months. Aire-Co wants to be able to meet this demand at minimum cost. How does the solution change if each plant is required to produce at least 50 units per month?

Answer 1

If each plant is required to produce at least 50 units per month, the solution will change depending on the per unit cost and production capacity of each plant.

Step-by-step explanation:

To determine the solution change if each plant is required to produce at least 50 units per month, we need to consider the per unit cost of production in each plant, the plant's maximum production capacity, and the estimated demand for the next three months.

If each plant is required to produce at least 50 units per month, the fixed costs and inventory holding costs will be the same. However, the variable costs per unit may change depending on the production levels.

The solution will change because the plant that has the lower per unit cost may not be able to produce the minimum required units, which may lead to higher per unit costs in order to meet the demand.