Hyundai Motors is considering three siteslong dash-A, B, and Clong dash-at which
ID: 343119 • Letter: H
Question
Hyundai Motors is considering three siteslong dash-A, B, and Clong dash-at which to locate a factory to build its new-model automobile, the Hyundai Sport C150. The goal is to locate at a minimum-cost site, where cost is measured by the annual fixed plus variable costs of production. Hyundai Motors has gathered the following data: Site Annualized Fixed Cost Variable Cost per Auto Produced $10,000,000 $20,000,000 $30,000,000 $2,600 $2,100 $1,100 The firm knows it will produce between 0 and 60,000 Sport C150s at the new plant each year, but, thus far, that is the extent of its knowledge about production plans. a) The value of volume, V, of production above which site C is recommended Sport C150s (round your response up to the next whole number). b.) What volume indictates site A is optimal? c.) Over what range of volume is site B optimal? Why?Explanation / Answer
a) C is recommended = (FCc – FCa)/(VCa – VCc)
= (30,000,000 – 10,000,000)/(2600-1100)
= 13,333.33 = greater than 13,333 units
b) A optimal units = (FCc – FCa)/(VCa – VCc)
= (30,000,000 – 10,000,000)/(2600-1100)
= 13,333 units
A optimal units = 0 to 13,333 units
c) B is not feasible in any of the production range. A and C have lower costs as compared to B.
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