Question

7. A company currently has two warehouses to service all demand in the United States. They are in Los Angeles, California and Chicago, Illinois, with equal demand in both places. The company wants to open two more warehouses in Las Vegas, Nevada and Dallas, Texas. Sales projects that total demand will initially be about the same, and that demand will now be divided equally divided among all four locations. How will inventory costs change with 4 sites instead of 2?

a. Increasing the network from 2 sites to 4 will roughly double the total cost of inventory.

b. Increasing the network from 2 sites to 4 will roughly half the total cost of inventory.

c. Increasing the network from 2 sites to 4 will increase the total cost of inventory by a little less than one and one-half times the current costs.

d. Increasing the network from 2 sites to 4 will not change the total cost of inventory.

Answer 1

The correct answer is Option C - Increasing the network from 2 sites to 4 will increase the total cost of inventory by a little less than one and one-half times the current costs.

Since the demand is same and will be divided about the same initially among the four locations.