Question

Options for company XYZ to set up production at different locations are provided below.

Location	Fixed Costs	Variable Costs
A	$60,000	$        5.00
B	$50,000	$        7.00
C	$70,000	$        2.50
Given the fixed and variable costs for different locations above, find the most suitable range of production for each of the following location:
a. What is the most suitable production range for C?
b. What is the most suitable production range for B?
Note: format of answer would use terms such as "greater than" or "less than" or "between" in the context of quantity.

Answer 1

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Answer

Please find graph of total cost of different locations for different quantity.

Total Cost = Fixed cost + (Variable cost per unit * Qty )

Total Cost Graph -

From Above grapgh, we can say that,Location - A at any quantity does not have low cost.

Hence, Location B or Location C has low cost compare to Location A.

Intersection Quantity of Cost line of location B and Location C

Total cost of Location B = Total Cost of Location C

50,000 + ( 7 * Qty ) = 70,000 + (2.5 * Qty)

4.5 * Qty = 20,000

Qty = 4444.44

Hence For qty less and equal to 4444, Location B has low cost

For Qty greater and equal to 4445, Location C has lowest cost

Hence ,

a. Suitable production range for C

Ans. Productin Qty 4445

B. Suitable production range for B

Ans. Productin Qty 4444