C&A is considering three potential locations for its warehouse: Lexington, Chica
ID: 428007 • Letter: C
Question
C&A is considering three potential locations for its warehouse: Lexington, Chicago, and Madison. Lexington involves a fixed cost of $4,000 per month and a variable cost of $4 per unit; Chicago involves a fixed cost of $3,000 per month and a variable cost of $5 per unit; Madison involves a fixed cost of $4,500 per month and a variable cost of $6 per unit. Use of the Lexington location increases transportation costs by $19,000 per month, Chicago by $22,000 a month and Madison by $18,000 a month. Which location will you choose if demand is expected to be 800 units per month?
Either Lexington or ChicagoExplanation / Answer
Lexington:
Fixed cost = 4000
Variable cost = 4 per unit
Total cost = Fixed cost + Quantity*Variable cost
Quantity = 800
Lexington total cost = 4000 + 4*800 +19000=26200
Chicago:
Fixed cost = 3000
Variable cost = 5 per unit
Total cost = Fixed cost + Quantity*Variable cost
Quantity = 800
Chicago total cost = 3000+800*5+22000 = 29000
Madison:
Fixed cost = 4500
Variable cost = 6 per unit
Total cost = Fixed cost + Quantity*Variable cost
Quantity = 800
Madison fixed cost = 4500+6*800 +18000= 27300
Choose Lexington
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