Consider the fictional continent of Calliope.The continent consists of four main regions: (i) Orion, (ii) Scorpius, (iii) Auriga, and (iv) Cygnus. Antila industries is a manufacturer of an industrial component used to manufacture cement. Currently, it operates a single factory and a single warehouse in a separate continent. The regions of Calliope provide an opportunity for Antila to explore.
Product: The product that Antila manufactures is lightweight and stays consistent across varying temperatures. It can be transported through trucks or mail.
Production: A factory can produce only one batch/drum at a time. The more capacity a factory has, the faster the production. The fixed cost to build a factory is $250,000. Antila produces the industrial component in batches, loads it into small plastic drums and then transports the drums to the warehouses. The warehouses send drums to customers as orders are received.
Factory capacity of one drum per day costs $25,000. For example, the cost to build a new factory with a capacity of 5 drums per day is 250,000 + 5*25,000 = $375,000. Adding an additional capacity of 3 drums per day later would cost 3*25,000 = $75,000. The capacity cannot be retired.
Production takes place in batches. The cost to produce one batch equals $1500 plus the number of drums*$1000. For instance, the cost to produce 10 drums is 1500+10*1000 = $11,500.
Warehouse: A new warehouse costs $50,000. There is no limit to which the drums can be stored in a warehouse. The inventory cost (holding cost
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