Chapter & lomework lomework Help Save & Exit Problem 8-3 A small producer of mac

Question

Chapter & lomework lomework Help Save & Exit Problem 8-3 A small producer of machine tools wants to move to a larger building, and has identfied two altematives. Location A has annual toed costs of $115,000 and variable costs of $9,000 per unit, kocation B has annual fixed costs of $315,000 and variable costs of s5,000 per unit. The finished items sell for $14,000 each a. At what volume of output would the two locations have the same total cost? Volume of output units b-1. For what range of output would location A be superior? (Enter your answer as a whole number. Do not include the indifterence spoint in your answer Range of output Oto b-2 For what range would B be superior? (Enter your answer as a whole number. Do not include the indifference point in your Range of output or more 5 6 8

Explanation / Answer

Fixed cost = 115000 $; Variable cost per unit = 9000 $/unit;

x = Number of units

Location A Total costs = 115000+9000*x

Location B Total costs = 315000+5000*x

Location A Total Revenue = Location B Total Revenue = 14000*x

a) 115000+9000*x = 315000+5000*x

4000*x = 200000 => x = 50 units

The costs at both locations are equal at 50 units of output.

b) At x = 49 units, Location A costs = 115000+9000*49 = 556000 $

Location B costs = 315000+5000*51 = 560000 $

Hence Location A costs would be lesser and hence the profit would be higher for x < 50 units

Location A would be superior from range 0 to 49 units

c) At x = 51 units, Location A costs = 115000+9000*51 = 574000 $

Location B costs = 315000+5000*51 = 570000 $

Hence Location B costs would be lesser and hence the profit would be higher for x > 50 units

Location B would be superior from range 51 or more

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.