Question

John's Furniture store sells customers an entire houseful of furniture in one transaction. John has notice that his company could use a bigger facility. There are two available locations. Location A would have annual fixed costs of $120,000 and variable costs of $15,000 per furniture set; location B would have annual fixed costs of $320,000 and variable costs of $10,000 per furniture set. The furniture sets sell for $20,000.

a.	For what output level would John be indifferent between the two locations?

Output level

units

b-1.	For what output range would A be preferred? (Enter your answer as a whole number. Do not include the indifference point in your answer.)

Output range

0 to

b-2.	For what output range would B be preferred? (Enter your answer as a whole number. Do not include the indifference point in your answer.)

Output range

or more

Answer 1

a)

for indifference total cost of location A =total cost of location B

120,000+(15000x=320000+10000x

5000x =200000

Output level =x=200000/5000=40 units

b-1)

Output range 0 to 40

b-2)

  Output range 40 or more