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 |
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
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