The following data are related to the operating costs of three possible location
ID: 1252011 • Letter: T
Question
The following data are related to the operating costs of three possible locations for Fountain Manufacturing
location 1 location 2 location3
fixed costs $165,000 $125,000 $180,000
direct material cost per unit 8.5 8.4 3.7
Direct labor cost per unit 4.2 3.9 3.7
Overhead per unit 1.2 1.1 1.0
Transportation costs per 1000 units 800 1,100 950
Which location would minimize the total costs, given an annual production of 50,000 unit? for what levels of manufacture and distribution would each location be best?
Explanation / Answer
Total Fixed cost per location location 1 = $165000 location 2 = $125000 location 3 = $180000 Total variable cost (for one unit) location 1 = 8.5+4.2+1.2+800/1000 = 14.7 location 2 = 8.4+3.9+1.1+1100/1000 = 14.5 location 3 = 3.7+3.7+1+950/1000 = 9.35 Cost for 50,000 units location 1 = $165000 + 14.7*50000=$900000 location 2 = $125000 + 14.5*50000=$850000 location 3 = $180000 + 9.35*50000=$647500 Location 3 is the cheapest at 50,000 units location 2 will always be cheaper then location 1 since the fixed cost and variably cost are lower (if the number I read are correct the way you posted them are hard to read) so they only comparison is between location 2 and location 3 then is a cost saving of 5.15 per unit made (14.5-9.35) so at the production of 10680 units is where the two location would cost about the same (fixed cost / saving = 55000/5.15) location 2 is best for 10680 unitsRelated Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.