Hyundai Motors is considering three siteslong dash—A, B, and Clong dash—at which

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 Upper A $12,000,000 $2,600

Upper B $22,000,000 $1,900

Upper C $25,000,000 $1,000

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 Upper C is recommended = nothing Sport C150s (round your response up to the next whole number).

b) The value of volume, V, of production below which site Upper AA is recommended = nothing Sport C150s (round your response up to the next whole number).

c) Over what range of volume is site Upper B optimal? A. Site Upper B is optimal for volumes from 14,286 Sport C150s. B. Site Upper B is optimal for volumes above 14,286 Sport C150s. C. Site Upper B is always optimal because its cost line is always below that of A and C for all volume levels.

D. Site Upper B is never optimal because its cost line always exceeds that of A or C for all volume levels

Explanation / Answer

Site Annualized fixed cost Variable cost per auto produced A $12,000,000 $2,600 B $22,000,000 $1,900 C $25,000,000 $1,000 Volume Site A Site B Site C 0 $12,000,000 $22,000,000 $25,000,000 10000 $38,000,000 $41,000,000 $35,000,000 20000 $64,000,000 $60,000,000 $45,000,000 30000 $90,000,000 $79,000,000 $55,000,000 40000 $116,000,000 $98,000,000 $65,000,000 50000 $142,000,000 $117,000,000 $75,000,000 60000 $168,000,000 $136,000,000 $85,000,000

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