You have been assigned to make a recommendation about whether to build a factory

Question

You have been assigned to make a recommendation about whether to build a factory manufacturing facility in Arkansas or New Jersey. Average production is estimated at 60,000 units per year. Estimations for cost factors were observed by obtaining cost data over the past year. Fixed costs including the financing of building and equipment, property taxes and insurance as well as overhead staff. Variable costs include repair product development, direct labor, shipping in and out. Our analysis indicated the following costs:

Part A: Write an expression for the cost of manufacturing x units in Arkanasas:

Part B: Write an expression for the cost of manufacturing x units in New Jersey:

Part C: Determine the break-even point.

Part D: With the average production at 60,000 units should the facility be built in Arkansas?

Part E: With an anticipated production of 80,000 units, the facility location should be chosen based on the fact that:

anticipated production volume is greater than break even volume.

anticipated production volume is less than break even volume.

variable costs are cheaper in New Jersey.

Fixed costs are higher in New Jersey.

Part F: In a few short sentences, determine when the facility should be built in Arkansas and when in New Jersey.

Part G: If manufacturing increased to 80,000 units should the facility be built in New Jersey?

Explanation / Answer

A) Cost of manufacturing in Arkanasas

= 52.73x + 3753000

B) Cost of manufacturing in New Jersey

= 74.99x + 2221000

C) At break even point,

52.73x + 3753000= 74.99x + 2221000

So, 1532000 = 22.26x

So, x = 68823

So, the break even point is 68823 units

D) No, it should be built at New Jersey

E) anticipated production volume is greater than break even volume.

F) if the manufacturing quantity is less than 68823, the facility shall be built in New Jersey and if the units is greater than 68823, the facility shall be built in Arkanasas

G) if the production is increased to 80000 units, facility shall be built in Arkanasas

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