A small producer of machine tools wants to move to a larger building, and has id

Question

A small producer of machine tools wants to move to a larger building, and has identified two alternatives. Location A has annual fixed costs of $100,000 and variable costs of $13,000 per unit; location B has annual fixed costs of $300,000 and variable costs of $8,000 per unit. The finished items sell for $18,000 each. a. At what volume of output would the two locations have the same total cost? Volume of Output b-1. For what range of output would location A be superior? (Enter your answer as a whole number. Do not include the indifference point in your answer.) Range of output 0 to: b-2. For what range would B be superior? (Enter your answer as a whole number. Do not include the indifference point in your answer.) Range of output:

Explanation / Answer

Location A Location B Selling Price $18,000 $18,000 Variable Costs $13,000 $8,000 Fixed Costs $100,000 $300,000 Indifference Point = Change in Fixed Cost/Change in Variable Cost = (300000 - 100000) / (13000 - 8000) = 200000 / 5000 = 40 units At Indifference point, cost of both the locations is same - 40 units Location A Range 0 to 39 units Location B Range 41 and above

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