Suppose that a manufacturer of men’s shirts can produce a dress shirt in its Houston, Texas plant for $8 per shirt (including the cost of raw materials). Chicago is a major market for 100,000 shirts per year. The shirt is priced at $15 at the Houston plant. Transportation and storage charges from Houston to Chicago amount to $5 per hundredweight (cwt.). Each packaged shirt weighs 1 pound.
As an alternative, the company can have the shirts produced in Taiwan for $4 per shirt (including the cost of raw materials). The raw materials, weighing about 1 pound per shirt, would be shipped from Houston to Taiwan at a cost of $2 per cwt. When the shirts are completed, they are to be shipped directly to Chicago at a transportation and storage cost of $6 per cwt. An import duty of $0.50 per shirt is assessed.
a. From a logistics-production cost standpoint, should the shirts be produced in Taiwan? b. What additional considerations, other than economic ones, might be considered before making a final decision?
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