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Satco Foods produces tomato sauce at three plants located in Los Angeles, New York and St. Louis.
Satco Foods produces tomato sauce at three plants located in Los Angeles, New York and St. Louis. The monthly production capacity (in millions of pounds) of each plant and variable production cost (per pound) are as follows:
Production Capacity Variable Production Cost
Plant (in millions) (per pound)
New York 9 $.20
Los Angeles 7 $.23
St. Louis 8 $.18
After the tomato sauce is produced it is shipped to four different warehouses located in Philadelphia, Chicago, Atlanta and Kansas City. The shipping cost from plant to warehouse is the same for all locations it is $.0002 pounds per mile. At least 2,000,000 pounds of tomato sauce per year must be shipped through a warehouse for it to be economical to use. If a warehouse site is not used it incurs no cost. To get some idea of monthly shipping and operating cost at the warehouses, Satco has tabulated historical data in file Satco_Template.xlsx. This file contains information of monthly shipping and operating cost for the warehouses. It is based on analysis of other similar products that are stored in the warehouse and shipped to final destinations. This data is provided in two tables. Table 1 shows shipping/ transportation cost from the warehouses to final destinations as a function of pounds and mileage shipped. Table 2 shows average warehouse operating costs for the warehouse operations over the last 18 months. These operating costs are associated with storage and handling of product on a per pound basis. The cost are segregated by east coast operations (average for Philadelphia and Atlanta warehouses) and mid west operations (average for Chicago and Kansas City Operations). Use this information to determine unit shipping / transportation and operation cost associated with the warehouses.
Satco ships tomato sauce to six distributors from the warehouse operations. The monthly amounts of tomato sauce required by each distributor is as follows:
Distributor Location (in millions of pounds)