A company that produces pleasure boats has decided to expand one of its lines. C
ID: 463997 • Letter: A
Question
A company that produces pleasure boats has decided to expand one of its lines. Current facilities are insufficient to handle the increased workload, so the company is considering three alternatives, A (new location), B (subcontract), and C (expand existing facilities). Alternative A would involve substantial fixed costs but relatively low variable costs: fixed costs would be $300,000 per year, and variable costs would be $530 per boat. Subcontracting would involve a cost per boat of $2,600, and expansion would require an annual fixed cost of $52,000 and a variable cost of $1,040 per boat.
Find the range of output for each alternative that would yield the lowest total cost. (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to the nearest whole number.)
a.Find the range of output for each alternative that would yield the lowest total cost. (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to the nearest whole number.)
Explanation / Answer
From the below table we can conclude that alternative A would yield a lowest cost at quantity 487 or more, alternative B will yield a lowest cost at quantity range 0 to 33 and alternative C will yield a lowest cost at quantity range from 34 to 486.
Alternative A lowest cost Quantity 487 Alternative Fixed Cost Variable Total Cost Average A 300000 530 558110 1146.016 B 2600 1266200 2600 C 52000 1040 558480 1146.776 Alternative B lowest cost Quantity 33 Alternative Fixed Cost Variable Total Cost Average A 300000 530 317490 651.9302 B 2600 85800 176.1807 C 52000 1040 86320 177.2485 Alternative C lowest cost Quantity 34 Alternative Fixed Cost Variable Total Cost Average A 300000 530 318020 653.0185 B 2600 88400 181.5195 C 52000 1040 87360 179.384 Lowest cost for 230 boats = Alternative C Quantity 230 Alternative Fixed Cost Variable Total Cost Average A 300000 530 421900 866.3244 B 2600 598000 1227.926 C 52000 1040 291200 597.9466Related Questions
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