Question: HAL Ltd. produces a line of high-capacity disk drives for mainframe computers. The housings for the drives are produced in Hamilton, Ontario, and shipped to the main plant in Toronto. HAL uses the drive housings at a fairly steady rate of 720 per year. Suppose that the housings are shipped in trucks that can hold 40 housings at one time. It is estimated that the fixed cost of loading the housings onto the truck and unloading them on the other end is $300 for shipments of 120 or fewer housings (i.e., three or fewer truckloads). Each trip made by a single truck costs the company $160 in driver time, gasoline, oil, insurance, and wear and tear on the truck.

a. Compute the annual costs of transportation and loading and unloading the housings for the following policies:

(1) shipping one truck per week,

(2) shipping one full truckload as often as needed, and

(3) shipping three full truckloads as often as needed.

b. For what reasons might the policy in part (a) with the highest annual cost be more desirable from a systems point of view than the policy having the lowest annual cost?