Question

A private warehouse can be constructed for $26 per sq ft, amortized over 10 years, and operated at $0.04 per lb of throughput. Annual fixed costs are $2.5 per sq ft. of total space. Suppose a manufacturer plans to construct a 50,000 sq ft private warehouse, and its monthly inventory turnover ratio is 2. In May, the manufacturer estimates that the total demand will be 1,000,000 lb. What is the total cost for this Private warehouse in May? A. Less than $50,000 B. Between $50,000 and $100,000 C. Between $100,000 and $150,000 D. Larger $150,000

Answer 1

The total cost for this Private Warehouse in May is:

C. Between $100,000 and $150,000.

Step-by-step explanation:

a) Data and Calculations:

Operating cost per lb of throughput = $0.04

Throughput /total demand for May = 1,000,000 lb

Total operating cost = $40,000 (1,000,000 * $0.04)

Annual fixed costs per square feet of total space = $2.50

Total annual fixed costs = $125,000 ($2.50 * 50,000)

Monthly fixed costs = $62,500

Total cost in May = $102,500 ($40,000 * $62,500)