Question

A firm is considering two location alternatives. At location A, fixed costs would be $4,000,000 per year, and variable costs $0.30 per unit. At alternative B, fixed costs would be $3,600,000 per year, with variable costs of $0.35 per unit. If annual demand is expected to be 10 million units, which plant offers the lowest total cost?A) plant A, because it is cheaper than Plant B for all volumes over 8,000,000 units B) plant B, because it is cheaper than Plant A for all volumes over 8,000,000 units. C) Plant A, because it is cheaper than Plant B for all volumes D) plant B, because it has the lower variable COM per unit E) Neither Plant A nor Plant B, because (he crossover point is at 10 million units.

Answer 1

Answer:

A) plant A, because it is cheaper than Plant B for all volumes over 8,000,000 units

Explanation:

Please see attachment.

Answer 2

The plant that offers the lowest total cost is plant A, because it is cheaper than Plant B for all volumes over 8,000,000 units.

Which plant should be chosen?

In order to determine the plant that would be chosen, the total cost of each plant has to be determined.

Total cost = fixed cost + (variable cost x total output)

Total cost of plant A = $4,000,000 + (0.3 x 10 million) = $7million

Total cost of plant B = $3,600,000 + (0.35 X 10 million) = 7.1 million

To learn more about variable cost, please check: https://brainly.com/question/26959638