C&A must decide among three location alternatives: Austin, Boston and Chicago. A

Question

C&A must decide among three location alternatives: Austin, Boston and Chicago. Austin has annual fixed costs of 500,000, transportation costs of $10 per unit, and labor and material costs of $30 per unit. Boston has annual fixed costs of $250,000, transportation costs of $40 per unit, and labor and material costs of $40 per unit. Chicago has annual fixed costs of $400,000, transportation costs of $20 per unit, and labor and material costs of $40 per unit. What is the indifference quantity between Boston and Chicago?

5000

6250

7500

Boston is not an option

Chicago is not an option

5000

6250

7500

Boston is not an option

Chicago is not an option

Explanation / Answer

indifference point can be computed as

(X- fixed cost of Boston ) / variable cost per unit = (X- fixed cost of Chicago ) / variable cost per unit

X-250000/80 = X-400000 /60

60X-15000000 = 80 X -32000000

60X-80X = -32000000 +`15000000

20X= 17000000

X = 850000

Note : sales price is not given , if it would given then the indifference quantity would be obtained by dividing the resultant amount

amount in $ Austin Boston chicago Fixed cost 500000 250000 400000 transportation cost per unit 10 40 20 labour and material costper unit 30 40 40 total variable cost 40 80 60

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