Jacobs Industries' only product is an industrial chemical that can be mixed with air to form a foam that is: •Lightweight;
•Stable over a very wide range of temperatures;
•A very efficient thermal insulator;
•A very efficient acoustic insulator.
Jacobs sells its chemical to manufacturers of air conditioner retrofit kits. The manufacturers are all located in the region of Calopeia. They purchase the foam chemical as a substitute for competitors' products. If Jacobs cannot ship an order within 24 hours of receiving the order from the customer, the customer makes its purchase from a competitor without any loss of future demand. The chemical is shipped in small plastic drums at a price of $1450 a piece. Demand for the chemical is highly seasonal but otherwise very stable. There are no long-run market trends, either upward or downward. The size of orders is very random, with an average size of 7 or 8 drums. Orders arrive randomly throughout each 24-hour day. It is now day 730, two years after Jacobs began producing and marketing the chemical. A new foam technology is in development at Jacobs that will render all production capacity and inventory of the current foam obsolete and worthless on day 1460. All customers are aware of the pending new technology and as a result, demand will decrease to zero on day 1460.
Operations and Finance
Jacobs' distribution network consists of a single factory and a single warehouse, both in Calopeia. The warehouse only supplies air conditioner retrofit kit manufacturers, who are all in Calopeia. Jacobs produces its chemical in batches, loads the chemical into small plastic drums, and then transports the drums from the factory to the warehouse by truck. The warehouse sends drums to customers as orders are received. The cost of fulfilling an order, including the cost of mailing the drum to the customer, is $150 per drum. The current capacity of the factory is 20 drums per day. More factory capacity can be...