Background of SportStuff.com
SportStuff.com is founded in 1996 by Sanjay Gupta. The company is supplying affordable sports equipment for the parents to their children. Sanjay Gupta created the idea of this business because the parents complained that the children grow rapidly. It was not efficient and wasting money to replace the sports equipment for the children frequently. Since parents had to replace new expensive skates, skis, jackets, and shoes so often that it became of the rapid growth of children. Therefore, the company purchased used equipment from families and any surplus equipment from manufacturers and retailers and sold them over the Internet.
The business realized the needs of the target customers, parents. Therefore, the
Louis
Costs of warehouse and inventory = 220,000+375,000+0.2(4,617,000)+250,000+0.31(617,000)+530,000
+0.170(4,000,000) = $3,169,670
Transportation cost = (3(4,617,000)+3.5(1,036,800+648,000+567,000)+2.5(518,400+,712,800)
+3(1,134,000))/4
= $8,328,825
Total cost = $11,498,495
Option 2: Lease 1 Small Warehouse in Seattle, St. Louis and Atlanta respectively
Shipment Charge earned by SportStuff.com
=$3x4, 617,000/4
=$3,462,750

Shipment charged by UPS
=($2x1,036,800/4+$2.5x648,000/4)+($2.5x518,400/4+$2.5x497,096/4+$3x984,504/4)+($2.5x215,704/4+$3x149,496/4+$2.5x567,000/4)
=$2,897,77

Inventory Cost: (single linear)
(475,000+0.165x1,684,800)+(475,000+0.165x2,000,000)+(475,000+0.165x932,200)
= $2,186,805

Facility cost
($300,000+$0.2x1,684,800)+ (220,000+$0.2x2,000,000)+(220,000+$0.2x 932,200)
=$1,663,400

Total cost: 2,897,775+2,186,805+1,663,400-3,462,750 =$3,285,230

Year 2002
Total Demand = 8,310,600
Option 1: Lease 2 Large and 1 Small Warehouses in St. Louis
Costs of warehouse and inventory =