Question

In: Operations Management

Fixed and variable costs for four potential plant locations are shown below: Location Fixed Cost Variable...

Fixed and variable costs for four potential plant locations are shown below:

Location

Fixed Cost

Variable Cost

per Year

per Unit

A

$200,000

$18

B

$120,000

$25

C

$150,000

$20

D

$250,000

$18

not using excel please.

The maximum production volume is 40,000 units.

  1. Find the best location based on the maximum production volume.
  2. Find the volume range/location recommendations.

Solutions

Expert Solution

Answer a=

Total cost for location A= 200000+18*40000=920000

Total cost for location B= 120000+25*40000=1120000

Total cost for location C= 150000+20*40000=950000

Total cost for location D= 250000+18*40000=970000

From the above, it is clear that location A has the least cost, so location A should be selected

Answer B=

Location A Location B Location C Location D
X 200000+18*X 120000+25*X 150000+20*X 250000+18*X
2000 236000 170000 190000 286000
5000 290000 245000 250000 340000
10000 380000 370000 350000 430000
15000 470000 495000 450000 520000
20000 560000 620000 550000 610000
25000 650000 745000 650000 700000
30000 740000 870000 750000 790000
35000 830000 995000 850000 880000
40000 920000 1120000 950000 970000

From Table and figure the volume range for the different locations are as below=

Location A= from 25000 units to 40000 units

Location B= from 0 to 7000 units

Location C= from 7000 units to 25000 units

Location D=more than 40000 units


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