A company that produces pleasure boats has decided to expand one of its lines. C

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 $260,000 per year, and variable costs would be $560 per boat. Subcontracting would involve a cost per boat of $2,570, and expansion would require an annual fixed cost of $56,000 and a variable cost of $1,050 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 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 $260,000 per year, and variable costs would be $560 per boat. Subcontracting would involve a cost per boat of $2,570, and expansion would require an annual fixed cost of $56,000 and a variable cost of $1,050 per boat.

Explanation / Answer

Just use the formula where Y = mx + b
m= variable costs
x= boats
b= fixed costs

So, for fixed cost =$1000, 200 boats @ $500 per boat,
y = $500 * 200 + $1000 = $101000

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