Dennison Manufacturing makes large helical springs used in aircraft landing gear

Question

Dennison Manufacturing makes large helical springs used in aircraft landing gear. The company has narrowed its potential choices for its new manufacturing facility to four cities. The following information is known about the manufacturing and shipping costs of locating in each of these four cities Fixed Costs Variable Manufacturing Variable Shipping per Year $350,000 $550,000 Costs per Unit $5.00 $4.00 $2.00 $5.00 Costs per Unit Seattle Atlanta Phoenix $1,500,000 Buffalo $1,650,000 $75.00 $56.00 $37.00 S40.00 a. Use break-even point analysis to determine where Darren should locate Choice Quantity per Year less than units between and units more than units Enter your answer in the edit fields and then click Check Answer

Explanation / Answer

Total cost = Fixed cost + Variable cost

Seattle: 350,000 + x*(75+5)

Atlanta: 550,000 + x*(56+4)

Phoenix: 1,500,000 + x*(37+2)

Buffalo: 1,650,000 + x*(40+5)

The breakeven is a point at which total cost is same.

So, Breakeven for Seattle and Atlanta is:

350,000 + 80*x = 550,000 + 60*x

x = 10,000

Breakeven between Atlanta and Phoenix is:

550,000 + 60*x = 1,500,000 + 39*x

x = 45,238

The cost for Buffalo will always be higher than Phoenix as the fixed and variable cost both are higher

Less than 10000 = Seattle

10000 to 45238 = Atlanta

More than 45238 = Phoenix

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