5. A firm is trying to decide between two location altematives, Albany and Balti

Question

5. A firm is trying to decide between two location altematives, Albany and Baltimore. Albany would result in annual fixed costs of $60,000, labor costs of $7 per unit, material costs of $10 per unit S15 per unit, and revenue per unit per unit, material (A) At costs of of S50. Baltimore would have annual fixed costs of $80,000, labor costs of $6 costs of S9 per unit, transportation costs of $14 per unit, and revenue per unit of $48. an annual volume of 9,000, which would yield the higher profit? (B) At what annual volume would management be indifferent between the two altematives in terms of annual profits? (10 points)

Explanation / Answer

Q5) Annual volume = 9000 units

Albany

Total costs = FC+VC = 60000+(7+10+15)*9000 = 348000 $

Revenue = 9000*50 = 450000 $

Profit = Revenue - TC = 450000-348000 = 102000 $

Baltimore

Total costs = FC+VC = 80000+(6+9+14)*9000 = 341000 $

Revenue = 9000*48 = 432000 $

Profit = Revenue - TC = 432000-341000 = 91000 $

Albany would yield higher profits.

b) The annual volume when management would be indifferent between the options can be found by equating the profits.

x*(50-32)-60000= x*(48-29)-80000=> x = 20000 units.

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