The Blair Company\'s three assembly plants are located in California, Georgia, a

Question

The Blair Company's three assembly plants are located in California, Georgia, and New Jersey. Previously, the company purchased major sub assembly, which becomes part of the final product, from an outside firm. Blair has decided to manufacture the sub assemblies within the company and must now consider whether to rent one centerly located facility or to rent three separate facilities, each located near one of the assembly plants, where each facility would manufacture only the assemblies needed for the nearby assembly plants. A single, centerally located facility, with production capacity of 18,000 units per year, would have fixed costs of 900,000 per year and variable costs of $250 per unit. Three separate decentralized facilities with production capacities of 8,000, 6,000, and 4,000 unites per year, would have fixed costs of $475,000, $425,000, and $400,000, respectively , and variable costs per unit of only $225 per unit, owing primarily to the reduction in shipping costs. The current production rates at the three assembly plants are 6,000, 4,500, and 3,000 units, respectively. 1. Assuming that the current production rates are maintained at the three assembly plants, which alternative should management select?

Explanation / Answer

Based on current production . 13,500 units ; $$4275000 = cost Based on maximum production , 18,000 units ; $5400000 = cost

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