A manufacturer of paint has two factories located in France and Spain and due to

Question

A manufacturer of paint has two factories located in France and Spain and due to economic conditions must close one of them. The factory productivity data is as follows:

                                                                                Gallons of Paint                             Total Costs                            

                                                                                Produced (1,000s)           (millions $)

                Factory (Spain)                                 4,600,000                              $5,250,000

                Factory (France)                               4,000,000                             $3,500,000

Based on the productivity analysis of both the factories, which of the following statements is true?

The factory in Spain is more productive than the factory in France.

Based solely on this productivity analysis, the factory in Spain must be closed

Based solely on this productivity analysis, the factory in France must be closed

Both factories have identical productivity levels. So, other criteria must be used to make this decision

The factory in Spain is more productive than the factory in France.

Based solely on this productivity analysis, the factory in Spain must be closed

Based solely on this productivity analysis, the factory in France must be closed

Both factories have identical productivity levels. So, other criteria must be used to make this decision

Explanation / Answer

Productivity analysis of both the factories

To find out the productivity of the factories we can calculate production cost per unit of both the factories

Here we have total production and total cost associated to that production

Therefore for the factory (Spain)

Production cost per unit = Total Cost / Total gallons of paint produced

= $ 5,250,000,000,000/ 4,600,000,000 = $ 1,141.30 per Gallon

And for the factory (France)

Production cost per unit = Total Cost / Total gallons of paint produced

= $ 3,500,000,000,000/ 4,000,000,000 = $ 875 per Gallon

Here the production cost is more for the factory at Spain than the production cost at the factory at France. Therefore the factory at France is more productive than at Spain so factory at Spain must be closed.

Based on the productivity analysis of both the factories, the true statements is

Option b. Based solely on this productivity analysis, the factory in Spain must be closed

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.