1. A small producer of machine tools wants to move to a larger building, and has
ID: 349469 • Letter: 1
Question
1. A small producer of machine tools wants to move to a larger building, and has identified two alternatives. Location A has annual fixed costs of $800,000 and variable costs of $14,000 per unit; location B has annual fixed costs of $920,000 and variable costs of $13,000 per unit. The finished items sell for $17,000 each. For what range of output would location A be superior? For what range would B be superior?
b.Range over which A and B would be superior:
Location A has the lowest fixed costs; therefore, it is preferred at lower volumes.
Conclusion:
Location A Preferred: 0 < 120 units
Location B Preferred: > 120 units
Can you generate a graph for TCA and TCB on Excel?????????????????????????
Explanation / Answer
Contribution = Selling Price – Variable Cost
Location A =
Contribution = $ 17,000 - $ 14,000 = $ 3,000
Location B =
Contribution = $ 17,000 - $ 13,000 = $ 4,000
Breakeven point in units = Fixed cost / Contribution per unit
Location A =
Breakeven point in units = $ 800,000 / $ 3,000 = 267 units
Location B =
Breakeven point in units = $ 920,000 / $ 4,000 = 230 units
Thus location A would be preferred over B with an output range of 267 units & more
Simultaneously location B would be preferred over A with an output range of 230 units & more
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.