A small producer of machine tools wants to move to a larger building, and has id

Question

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.

a.

At what volume of output would the two locations have the same total cost?

b.

For what range of output would location A be superior? For what range would B be superior?

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.

a.

At what volume of output would the two locations have the same total cost?

b.

For what range of output would location A be superior? For what range would B be superior?

Explanation / Answer

800000+14000x = 920000+13000x
1000x = 120000
x=120

a. 120 units

b. A: 0 to 119, B: 121 or more

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