Hyundai Motors is considering threesites—A, B,C —at which to locate a factory to build its new-model...
Hyundai Motors is considering threesites—A, B,C —at which to locate a factory to build its new-model automobile, the Hyundai Sport C150. The goal is to locate at a minimum-cost site, where cost is measured by the annual fixed plus variable costs of production. Hyundai Motors has gathered the following data:
|
Site |
Annualized Fixed Cost |
Variable Cost per Auto Produced |
||
|
A |
$12,000,000 |
$ 2,400 |
||
|
B |
$ 20,000,000 |
$ 2000 |
||
|
C |
$ 30,000,000 |
$ 1,050 |
||
The firm knows it will produce between 0 and 60,000 Sport C150s at the new plant each year, but, thus far, that is the extent of its knowledge about production plans.
a) The value of volume, V, of production above which site C is recommended =
b)The value of volume, V, of production below which site A is recommended = Sport C150s (round your response up to the next whole number).
c) Over what range of volume is site B optimal?
Homework Answers
Total cost = Fixed cost + variable cost* number of unit produced
| Quantities | Total cost for A | Total cost for B | Total cost for C |
| 0 | 12000000 | 20000000 | 30000000 |
| 10000 | 36000000 | 40000000 | 40500000 |
| 20000 | 60000000 | 60000000 | 51000000 |
| 30000 | 84000000 | 80000000 | 61500000 |
| 40000 | 108000000 | 100000000 | 72000000 |
| 50000 | 132000000 | 120000000 | 82500000 |
| 60000 | 156000000 | 140000000 | 93000000 |
The above costs can be resented as the below-mentioned graph
a) The value of volume, V, of production above which site C is recommended =
As Site C has the minimum cost for the volume of 20000 to 60000 units so for this production volume, site C is recommended
b)The value of volume, V, of the production below which site A is recommended =
As Site A has the minimum cost for the volume of 0 to 10000 units so for this production volume, site C is recommended
c) Over what range of volume is site B optimal?
B is not optimal for any of the volume range as other sites are effective in the different volume ranges
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