Solved: Acadia Logistics anticipates that it will need more

distribution center

Acadia Logistics anticipates that it will need more distribution center space to accommodate
what it believes will be a 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 $20.00 per square foot. The expected demand requirements follow:

a. Calculate the expected value of leasing public warehouse space as required by demand.

b. Calculate the expected value of building a 200,000-square- foot distribution center and
leasing public warehouse space as required if demand exceeds the need for 200,000 square
feet of space.

c. Calculate the expected value of building a 300,000-square- foot distribution center and
leasing public warehouse space as required if demand exceeds the need for 300,000 square
feet of space.

d. Calculate the expected value of building a 400,000-square- foot distribution center and
leasing public warehouse space as required if demand exceeds the need for 400,000 square
feet of space.

e. Calculate the expected value of building a 500,000-square- foot distribution.

f. Which of the above decisions provides the minimized expected value?

ANSWER
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