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Key & Peele have a contract for 10,000 cowbells and they plan to make a lot more in the future. The problem is, they don’t have a production site picked and they want to make as much money as possible. The best way to make money is to find the cheapest place to make cowbells and then sell them in the U.S.

Key & Peele know that 10,000 cowbells will require 1,000 hours of labor and 2,000 lbs of iron, and the use of hydrochloric acid, a hazardous chemical.

Help the men consider their options for least-cost production.

Scenario 1: Gary, IN

A) The Gary location is very near to the iron ore location making it more desirable and making the land more expensive. To buy a facility for production would cost \$1 million dollars. Divide the \$1 million by 10,000 cowbells; this is the LEAST amount of money Key & Peele would have to charge on their cowbells

just to break even on cost: ____________________ _

B) The Gary location will require 50 miles of transporting iron to the cowbell factory at a flat rate of \$100 plus 10 cents per mile for each truck. How much is this transportation cost per truckload? ______ This project will take 10 truckloads, what does that cost? ____________ � then divide this number by I 0,000 (cowbells): —–:———- � This is the least amount that can be charged per cowbell to break even on transportation costs.

C) Key & Peele have to also think about their market that they are selling to, which is 1,000 miles away. To get their product to market it costs a flat rate of \$200 plus 10 cents per mile for each truck. How much is the transportation cost per truckload? This project will take 10 truckloads, what is the cost? —–,,—-,——-,——,——� then divide this number by 10,000 (cowbells): ___________ � This is the least amount that can be charged per cowbell to break even on transportation costs.

D) Gary, IN is a right-to-work state, meaning that people do not have to join a union, and the cost of labor is cheaper per hour. In Gary, the cost of labor is \$6.00 an hour. How much is the company spending on labor? ——–,—,—-�then divide this number by 10,000 (cowbells). ——-� this is the least amount that can be charged for each cowbell to break even on labor. “‘

E) Made in the U.S., no tariffs on goods.

F) The U.S. has guidelines regarding the disposal of corrosive material like hydrochloric acid. The material must be properly disposed of which will cost \$100,000. This cost must be paid in the production of cowbells. Divide

cost by # of cowbells, how much is this? ————-

G) Add up the break-even amounts from A, B, C, D, E, F. These are all the numbers that you got by dividing by 10,000. What is the sum of all of these numbers? __________ � this is the lowest amount that can be charged per cowbell to break even.

Use the same format from Gary to solve the following production costs based on location locations below. Remember to break it down to cost per shirt at the end of each letter by dividing the amount by 10,000!

Scenario 2: Seattle, WA

A) Facility cost-free! Seattle has an outlier factory that has just been sitting there and they want you to have it!

B) The company will require 1,000 miles of transporting iron to the cowbell factory BUT, they can now do it by train. It will require 10 train cars, cost 3 cents per mile, and have a flat fee of \$50. Amount added to cowbells:

C) Market is 20 miles away, and will cost 10 cents per mile and a flat fee of\$200; 10 truckloads. Amount added to cowbell

D) Washington is a state that allows for unions, the cost of labor per hour in Seattle is \$15.00. BUT the unions are specialized and can make cowbells faster, so, they only need 800 hours to make the cowbells. Amount added to cowbells:

E) Made in the U.S., no tariffs on goods.

F) The U.S. has guidelines regarding the disposal of corrosive material like hydrochloric acid. The material must be properly disposed of which will cost \$100,000. Washington state likes the environment so they add their own additional fee of \$20,000. This cost must be paid in the production of cowbells. Divide cost by # of cowbells, how much is this?

G) Add up the break-even amounts from A, B, C, D, E, F. These are all the numbers that you got by dividing by 10,000. What is the sum of all of these numbers? __________ � this is the lowest amount that can be charged per cowbell to break even.

Scenario 3: Tecate, Mexico

A) The cost of the peso is very weak; a facility can be bought for \$5,000 (U.S.) Amount added to cowbells: B) Transport of iron ore will be 2,000 miles, 10 cents per mile, flat fee of \$500, and will require ten truck loads. Amount added to cowbells:

C) Market is 2,000 miles away, 10 cents per mile, flat fee of \$500, and will require ten truck loads. Amount added to cowbells:

D) Cost of labor is \$3.00 per hour. Amount added to cowbells

E) Made in Mexico. Although another country, there are no tariffs because it is part of the North American Free Trade Agreement (NAFTA).

F) Mexico cares about the health and safety of its population, but…you find the policies less strict than the U.S. Hydrochloric Acid is only about \$2,000 to dispose of in Mexico. Amount added to cowbells:

G) Add up the break-even amounts from A, B, C, D, E, F. These are all the numbers that you got by dividing by 10,000. What is the sum of all of these numbers? � this is the lowest amount that can be charged per cowbell to break even. Use the same format from Gary to solve the following production costs based on location locations below. Remember to break it down to cost per shirt at the end of each letter by dividing the amount by 10,000!

Scenario 4: Guangzhou, China

A) A facility in China isn’t really owned by you, but you can use one for a cost of\$1,000 U.S. Amount added to cowbells:

B) China has its own iron ore. Transporting will be 100 miles, 2 cents per mile, no flat fee, but will require 20

trucks (smaller trucks). Amount added to cowbells:

C) Shipping by container ship will require ten containers, at a cost of\$50.00 per container. Then, when the 10 containers get to the U.S. it will need another 100 miles of transport by truck at 8 cents a mile with a flat rate of\$50 per truck. Amount added to cowbells:

D) Cost of labor is 50 cents per hour. You don’t know how it’s that cheap, but you don’t ask questions. Amount added to cowbells:

E) Made in China, so the U.S. charges a tariff on cowbells. Add \$1.50 per cowbell. Just put \$1.50

here: F) Hydrochloric acid. Whatever, no concerns here. No fee.

G) Add up the break-even amounts from A, B, C, D, E, F. These are all the numbers that you got by dividing by 10,000. What is the sum of all of these numbers? � this is the lowest amount that can be charged per cowbell to break even.

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