The fixed and variable costs for three potential manufacturing plant sites for a
ID: 447798 • Letter: T
Question
The fixed and variable costs for three potential manufacturing plant sites for a rattan chair weaver are shown: The break-even point at which one would be indifferent between the options is given by: BEP_A vs B= Fixed Cost_A-Fixed Cost_B/Variable Cost_B-Variable Cost_A For the BEP to exist, the option that has a lower variable cost has to have the higher fixed cost. The option that will have the lower fixed cost and higher variable cost is best below the BEP and the option with the higher fixed cost and lower variable cost is best above the BEP. After found the numbers to the nearest whole number, site 1 is best below 33 units. After found the numbers to the nearest whole number, site 2 is best below 33 units. And 1000 units. After found the numbers to the nearest whole number, site 3 is best below 1000 units. If the demand is 990 units, then the best location for the potential manufacturing plant is SITE 2.Explanation / Answer
Site
Fixed Cost per Year
Variable Cost per Year
1
$800
$ 12.00
2
$1000
$6.00
3
$2000
$ 5.00
Site1:
Total cost= 800+(12*900)=11600
Site 2:
Total Cost= 1000+(6*900)=6400
Site 3:
Total Cost= 2000+(5*900)= 6500
Which implies site 1 is best for production.
Site
Fixed Cost per Year
Variable Cost per Year
1
$800
$ 12.00
2
$1000
$6.00
3
$2000
$ 5.00
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