California Pacific Lumber Company Three Sources Wood Five Markets Supplied Annual Availabi Q35075599

California Pacific is a lumber company that has three sources ofwood and five markets to be supplied. The annual availability ofwood at sources 1, 2, and 3 is 15, 20, and 15 million board feet,respectively. The amount that can be sold annually at markets 1, 2,3, and 4 and 5 is 11, 12, 9, 10 and 8 million board feet,respectively.

In the past, the company has shipped the wood by train. However,because shipping costs have been increasing, the alternative ofusing ships to make some of the deliveries is being investigated.This alternative would require the company to invest in some ships.Except for these investment costs, the shipping costs in thousandsof dollars per million board feet by rail and by water (whenfeasible) would be the following for each route.

The capital investment (in thousands of dollars) in shipsrequired for each million board feet to be transported annually byship along each route is given next.

Considering the expected useful life of the ships and the timevalue of money, the equivalent uniform annual cost of theseinvestments is one-tenth the amount given in the table. Theobjective is to determine the overall shipping plan that minimizesthe total equivalent uniform annual cost (including shippingcosts).

You are the head of the management science team that has beenassigned the task of determining this shipping plan for each of thethree options listed next.

Option 1: Continue shipping exclusively by rail

Option 2: Switch to shipping exclusively by water (except whereonly rail is feasible)

Present your results for each option andcompare.