Acadia Logistics anticipates that it will need more distribution center space to
ID: 351070 • Letter: A
Question
Acadia Logistics anticipates that it will need more distribution center space to accommodate what it believes will bea significant increase in demand for its final-mile services. Acadia could either lease public warehouse space to cover all levels of demand or construct its own distribution center to meet a specified level of demand, and then use public warehousing to cover the rest. The yearly cost of building and operating its own facility, including the amortized cost of construction, is $12.00 per square foot. The yearly cost of leasing public warehouse space is $19.50 per square foot. More Info ponse as a Requirements (in sq. ft) 160,000 360,000 560,000 760,000 Probability 0.3 0.35 0.15 0.2 Print DoneExplanation / Answer
a) Expected value of leasing public warehouse space as per demand = (160000*0.3+360000*0.35+560000*0.15+760000*0.2)*19.5
= $ 7,995,000
b) Expected value of building a 200,000 sqft distribution center and leasing public warehouse as required = 200000*12 + (MAX(0,160000-200000)*0.3+MAX(0,360000-200000)*0.35+MAX(0,560000-200000)*0.15+MAX(0,760000-200000)*0.2)*19.5 = $ 6,729,000
c) Expected value of building a 300,000 sqft distribution center and leasing public warehouse as required = 300000*12 + (MAX(0,160000-300000)*0.3+MAX(0,360000-300000)*0.35+MAX(0,560000-300000)*0.15+MAX(0,760000-300000)*0.2)*19.5 = $ 6,564,000
d) Expected value of building a 400,000 sqft distribution center and leasing public warehouse as required = 400000*12 + (MAX(0,160000-400000)*0.3+MAX(0,360000-400000)*0.35+MAX(0,560000-400000)*0.15+MAX(0,760000-400000)*0.2)*19.5 = $ 6,627,000
e) Expected value of building a 500,000 sqft distribution center and leasing public warehouse as required = 500000*12 + (MAX(0,160000-500000)*0.3+MAX(0,360000-500000)*0.35+MAX(0,560000-500000)*0.15+MAX(0,760000-500000)*0.2)*19.5 = $ 7,189,500
f) The decision that minimizes the expected cost is to build 300,000 sqft distribution center and lease public warehouse as needed.