How should company source production to maximize

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Reference no: EM133267573

Question: Pavlick Products supplies a key component for automobile interiors to U.S. assembly plants. The components can be manufactured in China or Mexico.

Unit cost in China is $333 and in Mexico, $350. However, shipping costs per 500 units are $10,000 from China and only $2,000 from Mexico; they are expected to increase 4% each month from China and 1% each month from Mexico. Each unit is sold to the automotive customer for $400.

Contracts with the Chinese vendor require that a minimum of 2,500 units be produced each month. Demand for the next 12 months is estimated to be as follows: Demand January 14,000 February 16,000 March 14,000 April 14,000 May 16,000 June 10,500 July 14,000 August 20,000 September 20,000 October 16,000 November 14,000 December 10,500 The Mexican plant is new and is gearing up production; its capacity will increase over the next year as follows: Mexican Plant Capacity January 0 February 2,500 March 5,000 April 7,500 May 10,000 June 12,500 July 15,000 August 15,000 September 15,000 October 15,000 November 15,000 December 15,000

How should the company source production to maximize total profit?

Reference no: EM133267573

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