Essay About Total Costtotal Cost And New Zealandfrom Japan

Trans World Oil Case
Base ScenarioObjective Function: Minimize total costTotal Cost = Cost of Refined Product + Marketing Shipment Cost + Ship Lease CostCost of Refined Product = Cost of Gasoline and Distillate from Australia + Cost of Gasoline and Distillate from Japan + Cost of Distillate from USDecision Variables: Please see the appendixConstraints: Please see the appendixAfter running the model, the total cost for the entire operation with the base assumptions is $1,671,675Memo 1:After increasing the demand by 1500 barrel per day the constraint for demand of Gasoline in Australia is 10,500 bbl/day. Also, the refinery capacity is increased by 15000 bbl/day. Running the model again, the incremental cost is calculated $40,348 and incremental revenue is $43,800 per day. Therefore, the incremental profit is $3,452 per day and $1,260,034 per year, which is greater than the required savings. Therefore, we recommend taking the project.Memo 2:After increasing the demand for Gasoline by 1,600 bbl/day and for Distillate by 3,200 bbl/day, we run the model again with respective changes in constraints. The resulting total cost is $1,830,100. Incremental cost is ($1,830,100 – $1,712,023) = $118,076. Daily revenue is $137,760. Daily profit is $19,684 and yearly profit is $7,184,556, which is greater than the required profit of $5,200,000. Therefore, we should proceed with the project.Memo 3:After increasing the tanker equivalent by 0.5 (from 6.9 to 7.4), total cost of operations decreases from $1,830,100 to $1,825,800. So total savings per day is $4,300 and savings per year is $1,569,500, which is greater than the lease value of $876,000. Therefore, we recommend leasing the tanker.Memo 4:If supply from Brunei is increased by 5000 barrels per day with a cost per barrel of $21.50, the cost increases by $1,302,707. Therefore, the we should not increase supply from Brunei.AppendixDecision Variables:Marketing Gasoline From Australia to AustraliaFrom Australia to PhilippinesFrom Australia to New ZealandFrom Japan to PhilippinesFrom Japan to JapanFrom Japan to New ZealandMarketing DistillateFrom Australia to AustraliaFrom Australia to PhilippinesFrom Australia to New ZealandFrom Japan to JapanFrom Japan to New ZealandFrom Japan to PhilippinesFrom US to New ZealandFrom US to PhilippinesQuantity of Crude from SourceIran Crude to Australia (Low)Iran Crude to Australia (High)Brunei Crude to Australia (Low)Brunei Crude to Australia (High)Iran Crude to Japan (Low)Iran Crude to Japan (High)Brunei Crude to Japan (Low)Brunei Crude to Japan (High)Constraints:Market Gasoline:Australia >= 9000Japan >= 3000Philippines >= 5000New Zealand >= 5400Total >= 22400Market DistillateAustralia >= 21000Japan >= 12000Philippines >= 8000New Zealand >= 8700Total >= 49,700Refinery ConstraintAustralia <= 50000Japan <= 30000Crude Oil Supply ConstraintIran <= 60000Brunei = 40000US Distillate <= 12000Market Quantity ConstraintAustralia – Gasoline >= Australia Gasoline (Australia + Japan + Philippines + New Zealand)Japan – Gasoline >= Japan Gasoline (Australia + Japan + Philippines + New Zealand)Australia – Distillate >= Australia Distillate (Australia + Japan + Philippines + New Zealand)Japan – Distillate >= Japan Distillate (Australia + Japan + Philippines + New Zealand)