A company that produces pleasure boats has decided to expand one of its lines. C

Question

A company that produces pleasure boats has decided to expand one of its lines. Current facilities are insufficient to handle the Increased workload, so the company is considering three alternatives, A tnew location), B (subcontract, and C(expand existing facilities) dAlternative A would involve substantial fixed costs but relatively low variable costs: fixed costs would be $270,000 per year, and variable costs would be $590 per boat. Subcontracting would involve a cost per boat of $2,540, and expansion would require arn annual fixed cost of $54,000 and a variable cost of $1,020 per boat a. Find the range of output for each alternative that would yield the lowest total cost (Leave no cells blank- be certain to enter "O wherever required. Round your answers to the nearest whole number.) to to nces

Explanation / Answer

Alternative A -

Total cost = FC+VC = 270000+590*x where x = number of boats

Alternative B -

Total cost = 2540*x

Alternative C -

Total cost = 54000+1020*x

Below are the ranges -

By equating alternative A to B,

270000+590x = 2540x => x = 139 units

For x = 140 units, Option A is cheaper which means <139 units, A is better.

Equating B and C,

2540x = 54000+1020x => x = 36 units

For x = 37 units, option C is cheaper which means <37 units C is better

Equating C and A,

270000+590x = 54000+1020x => x = 502 units

For x = 503 units, option A is cheaper.

Hence, range => A is cheaper > 502 units and higher

B => 0 to 36 units

C => 37 to 502 units

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