# solution

ABC Company plans to construct a 60,000 sq. ft. of private warehouse and rent public warehouse as needed. Warehouse inventory turns at the rate of two times per month. One pound of merchandise occupies 0.2 cubic feet of warehouse space and can be stacked 10 ft. high. Given aisles, administrative space, and normal operating efficiency, only 50 percent of the total warehouse space is actually used for storage. A private warehouse can be constructed and equipped for \$36 per sq. ft. and can be amortized over 20 years. The cost of operation is \$0.03 per lb of throughput. Annual fixed costs amount to \$20 per sq. ft. of total space. Space may also be rented for a storage charge on inventory of \$0.06 per lb per month and a handling charge of \$0.05 per lb of throughput.

Monthly demands for a typical year are as follows:

Month Demand (lb)

Jan. 2,000,000

Feb. 5,000,000

Mar. 3,000,000

Apr. 2,000,000

May 1,000,000

June 250,000

July 1,250,000

Aug. 2,250,000

Sept. 3,000,000

Oct. 3,500,000

Nov. 4,000,000

Dec. 4,500,000

Q1:how much storage is needed for Jan?

a.40000 sq ft b. 60000 sq ft c. 80000 sq ft d. 20000 sq ft

Q2:After some algebra, ABC finds out that Feb. needs a total of 100,000 sq. ft. storage space. Therefore, ABC needs to rent some storage space from a public warehouse. How much does ABC pay for the public warehouse in Feb?

a.60000 b.100000 c.120000 d.160000

Q3:After some algebra, ABC finds out that March needs a total of 60,000 sq. ft. storage space. Therefore, ABC will fully utilize its own private warehouse and will not need to rent any space from a public warehouse. In March, whatâ€™s ABCâ€™s total monthly cost which includes amortized fixed cost and variable cost?

A. 60000 b.120000 c.199000 d.109000