C&A is considering three potential locations for its warehouse: Lexington, Chica

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 of the following conclusion can be drawn? Check all that apply.

1) Choose Madison when demand is less than 250.

2) Choose Lexington when demand is greater than 250.

3) Choose Lexington when demand is less than 250.

4) Chicago is not an option.

5) Choose Madison when demand is greater than 250.

Explanation / Answer

Total cost is calculated as Sum of Fixed Cost + Increase in Transportation cost + Variable Cost * Demand . Hypothetical calculation of demand less than 250 and more 250 lead to the answer

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