Question

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* Question Completion Status: QUESTION 6 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 Fixed Cost/yr L1 L2 L3 7,958 5,879 11,897 variable cost/unit 3.1 4.5 2.2 (Ex. In a) The range of output for location alternative 1 that would yield the lowest total cost is whole number, use Q, <<, >, >= to specify the range) (Ex. In b) The range of output for location alternative 2 that would yield the lowest total cost is whole number, use Q, <<,>, >= to specify the range) (Ex. In c) The range of output for location alternative 3 that would yield the lowest total cost is whole number, use Q, <,<, >, >= to specify the range) d) The alternative would yield the lowest total cost for an expected annual volume of 4005 boats is location (Ex. type in as L1, L2, or L3) Save Chak Save and Suhmit to save and submit. Click Save All Answers to save all answers.

Answer 1

Solution:

Let,

FC = Fixed Cost

VC = Variable Cost Per Unit

FC VC Location L1 3.1 L2 7958 5879 11897 4.5 2.2 L3

Then,

Cross Over Point Between Two Locations = Absolute Difference Between Fixed Costs of Two Locations / Absolute Difference Between The Variable Cost Per Unit of Two Locations

Thus,

Coross Over Point Between L1 and L2 = | 7958 Coross Over Point Between L2 and L3 | 5879 Coross Over Point Between L1 and L3 17958 5879 1/1 3.1 - 11897 1/1 4.5 11897 1/1 3.1 4.5 ] = 1485 2.2 1 = 2617 2.2 1 = 4377 -

(Rounded to the nearest whole number)

Hence,

Answer a:

The range of output for L1 resulting in the lowest total cost = 1485 to 4377

Answer b:

The range of output for L2 resulting in the lowest total cost = 0 to 1485

Answer c:

The range of output for L3 resulting in the lowest total cost = 4377 and More

Answer d:

TC = Total Cost = FC + (Q x VC)

Where Q = 4005 Boats

Total Cost For Location L1 = 7958 + ( 4005 X 3.1 (4005 x 3.1 ) = 20373.50 Total Cost For Location L2 = 5879 + (4005 x 4.5 ) = 23901.50 Total Cost For Location L3 = 11897 + (4005 x 2.2 ) = 20708.00

Hence, the alternative location L1 yields the lowest total cost for the expected annual volume of 4005 boats

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