Question

1. The Soft Toys Company has collected information on fixed and variable costs for four potential plant locations.

Location	Annual Fixed Cost	Unit Variable Cost
A B C D	$200,000 $300,000 $400,000 $600,000	$70 $65 $45 $40

a. Plot the total cost curves for the four plant locations on a single graph (Use Excel or hand-drawing).
Hint: You can start with different Q (output quantity) such as 0, 5000, 10000, 15000, etc. and record responding total costs of each location. Accordingly, you can draw a line of each location on Excel worksheet (hand-drawing is fine) while X-axis is Q and Y axis is total cost.

b. Compute the range of demand for which location has the best cost advantage (the least total cost).

c.   Which plant location is best if demand is 30,000 units?

Answer 1

b) Between A and B

200000+x*70= 300000+x*65

5x= 100000

x= 20000

Between B and C

300000+65x= 400000+45x

x= 5000

Between An and C similarly

x= 8000

Between A and D

200000+x*70= 600000+40x

x= 13333.33

Between B and D

300000+65x=600000+40x

x= 12000

A is better when x<= 8000

C is better til 40000(From C and D)

8000<=C<= 40000

D is better x>= 40000

c) When the quantity is 30000

As it falls under C range i.e. >=8000 and <=40000

C is better option