Solutions Plus is an industrial chemicals company that producesspecialized cleaning fluids and solvents for a wide variety ofapplications. Solutions Plus just received an invitation to submita bid to supply Great North American railroad with a cleaning fluidfor locomo- tives. Great North American needs the cleaning fluid at11 locations (railway stations); it provided the followinginformation to Solutions Plus regarding the number of gallons ofcleaning fluid required at each location (see Table 6.8). SolutionsPlus can produce the cleaning fluid at its Cincinnati plant for$1.20 per gal- lon. Even though the Cincinnati location is its onlyplant, Solutions Plus has negotiated
TABLe 6.8 GALLONS OF CLEANING FLUID REQUIRED AT EACHLOCATION
Location | Gallons Required | Location | Gallons Required |
Santa Ana | 22,418 | Glendale | 33,689 |
El Paso | 6,800 | Jacksonville | 68,486 |
Pendleton | 80,290 | Little Rock | 148,586 |
Houston | 100,447 | Bridgeport | 111,475 |
Kansas City | 24,570 | Sacramento | 112,000 |
Los Angeles | 64,761 | | |
Table 6.9 | Freight Cost ($ Per Gallon) |
| Cincinnati | Oakland | |
| Santa Ana | 0 | 0.22 | |
| El Paso | 0.84 | 0.74 | |
| Pendleton | 0.83 | 0.49 | |
| Houston | 0.45 | 0 | |
| Kansas City | 0.36 | 0 | |
| Los Angeles | 0 | 0.22 | |
| Glendale | 0 | 0.22 | |
| Jacksonville | 0.34 | 0 | |
| Little Rock | 0.34 | 0 | |
| Bridgetport | 0.34 | 0 | |
| Sacramento | 0 | 0.15 | |
with an industrial chemicals company located in Oakland,California, to produce and ship up to 500,000 gallons of thelocomotive cleaning fluid to selected Solutions Plus customerlocations. The Oakland company will charge Solutions Plus $1.65 pergallon to produce the cleaning fluid, but Solutions Plus thinksthat the lower shipping costs from Oakland to some customerlocations may offset the added cost to produce the product. Thepresident of Solutions Plus, Charlie Weaver, contacted severaltrucking companies to negotiate shipping rates between the twoproduction facilities (Cincinnati and Oakland) and the locationswhere the railroad locomotives are cleaned. Table 6.9 shows thequotes received in terms of dollars per gallon. The “—” entries inTable 6.9 identify shipping routes that will not be consideredbecause of the large distances involved. These quotes for shippingrates are guaranteed for one year. To submit a bid to the railroadcompany, Solutions Plus must determine the price per gallon it willcharge. Solutions Plus usually sells its cleaning fluids for 15%more than its cost to produce and deliver the product. For this bigcontract, however, Fred Roedel, the director of marketing,suggested that maybe the company should consider a smaller profitmargin. In addition, to ensure that if Solutions Plus wins the bid,it will have adequate capacity to satisfy existing orders as wellas accept orders for other new business, the management teamdecided to limit the number of gallons of the locomotive cleaningfluid produced in the Cincinnati plant to 500,000 gallons atmost.
3. If Solutions Plus wants to use its standard 15% markup, howmuch should it bid?
