Compute the lowest annual cost for the production

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Reference no: EM132305563

Cyberdata, a PC manufacturer, currently has two production facilities. The first one is located in Alpha City and has a capacity of 200,000 units a year and an annual fixed cost of 20 million. The second plant is located in Beta City and has a capacity of 60,000 units a year and annual fixed cost of 9 million. The two plants serve the entire country which is divided into four regional markets: the Northwest with a demand of 120,000, the Southwest with a demand of 30,000, the Center with a demand of 80,000, and the East with a demand of 26,000.

For the next year, Cyberdata anticipates a 30% growth in demand in the Northwest, Southwest, and Center, and 50% growth in the East. Managers at Cyberdata want to increase their production capacity in order to accommodate the growth of the demand (which is expected to remain stable after 2020). Potential decisions being considered are the following:

Increase the capacity of the Alpha City plant to 300,000 units a year. The corresponding annual fixed cost is 26 million;

Increase the capacity of the Beta City plant to 100,000 units a year. The corresponding annual fixed cost is 11 million;

Build a new plant in Gamma City with a capacity of 100,000 units a year and an annual fixed cost of 15 million ;

Build a new plant in Delat City with a capacity of 50,000 units a year and an annual fixed cost of 7 million.

The production cost of one unit is 610 in Alpha City, 620 Beta City, 630 in Gamma City, and 590 in Delta City. The shipping costs of one unit are shown in the following table:

Northwest Southwest Center East

Alpha City 15 25 25 25

Beta City 25 12 35 45

Gamma City 30 20 15 20

Delta City 35 40 20 10

Cyberdata wants to compute the lowest annual cost for the production and distribution network and determine which plants serve which markets.

1) Formulate the corresponding integer programming problem

2) Find an optimal solution using Excel Solver.

Reference no: EM132305563

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