Question

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Ang company that produces pleasure boats has decided to expand one of its lines. The company is considering three Location alternatives. The cost structure for each location is given as shown in the table Location LI L2 L3 Fixed Cost/yr 8,500 6,500 13,500 variable cost/unit 3.2 4.3 2.5 a) The range of output for location alternative that would yield the lowest total cost is (Ex. In whole number, use Q.<< >>=to specify the range) b) The range of output for location alternative 2 that would yield the lowest total cost is (Ex. In whole number, use Q. <S> >=to specify the range) c) The range of output for location alternative 3 that would yield the lowest total cost is (Ex. In whole number, use Q.<> >= to specify the range) d) The alternative would yield the lowest total cost for an expected annual volume of 9505 boats is location (Ex. type in as L1, L2, or L3)

Answer 1

Cross-over points between L1 and L2 = (8500-6500)/(4.3-3.2) = 1818.181818
Cross-over points between L2 and L3 = (13500-6500)/(4.3-2.5) = 3888.888889

a)

The range of output for location 1 that would yield lowest total cost is Q < 1818.181818

b)
The range of output for location 2 that would yield lowest total cost is 1818.181818 < Q < 3888.888889

c)
The range of output for location 3 that would yield lowest total cost is Q > 3888.888889

d)

Hence, alternative that would generate lowest cost for volume of 9505 units = Location 3