A manufacturing firm is planning to open a new factory. There are four countries

Question

A manufacturing firm is planning to open a new factory. There are four countries under consideration: USA, Canada, Mexico, and Panama. The table below lists the fixed costs and variable costs for each site. The product is mainly sold in the U.S. for $850 per unit.

Location         Fixed Cost      Variable cost

USA              $400,000           $180

Mexico          $100,000           $250

Canada         $200,000           $200

Panama         $ 60,000           $300

a- Find the range of production that makes each country optimal with lowest total cost.

Explanation / Answer

For USA

contribution margin= $850-180= $ 670, break even point= 400000/670=597 units i.e. production must be greater than 597 units to be in profit withl optimal total cost

similarly for mexico 850-250=600, bep= 100000/600=166

canada 850-200=600 bep= 200000/600= 332

Panama 850-300=550 bep= 60000/550=109

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