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 $0.34 per unit. If annual demand is expected to be 9 million units, which plant offers the lowest total cost?

Question

Business

Davenport

2 April, 19:25

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 $0.34 per unit. If annual demand is expected to be 9 million units, which plant offers the lowest total cost?

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Logan Arias · Answer 1

Plant B

Explanation:

Total Demand = 9000000

Total Cost = Fix Cost + Variable Cost

Location A

Variable Cost = 9000000*0.3 = 2700000

Fix Cost = 4000000

Total Cost = 6700000

Location B

Variable Cost = 9000000*0.34 = 3060000

Fix Cost = 3600000

Total Cost = 6660000

Plant B is feasible because it will Save $40000