The following data are related to the operating costs of three possible location

Question

The following data are related to the operating costs of three possible locations for Fountains Manufacturing:

Location 1 Location 2 Location 3
Fixed Costs $165,000 $125,000 $180,000
Direct material cost per unit 8.5 8.4 8.6
Direct labor cost per unit 4.2 3.9 3.7
Overhead per unit 1.1 1.1 1.0
Transportation costs per 1,00 units 800 1,100 950

Which location would minimize the total costs, given an annual productoi of 50,000 units? For what levels of manufacture and distribution would each location be best?

Explanation / Answer

Location 1 would minizmise the total costs

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Location 1 Location 2 Location 3 Fixed costs 165000 125000 180000 Direct material 425000 420000 430000 Direct labour 210000 195000 185000 Overhead costs 55000 55000 50000 Transportation cost 400000 550000 475000 Total costs 1255000 1345000 1320000

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