Two alternatives are being considered for warehousing and distributing canned
foods in a sales region. The cans come in cartons of 24 cans per carton. The two
alternatives are: Alternative A. Have your own distribution system. The administrative costs
are estimated at $43,000 per year, and other general operating expenses are
$0.009 per carton. A warehouse will be purchased for $300,000.
• Alternative B. Sign an agreement with independent distributor, which asks
payment of $0.10 per carton distributed.
Assume a study period of 10 years, and that the warehouse can be sold at the end
of this period for $200,000. Which alternative should be chosen, if they expect
the number of cartons to be distributed will be 600,000 per year?
