A Firm Is Trying to Decide Between Two Location Alternatives,A

question 21

Essay

A firm is trying to decide between two location alternatives,A and
B.A would result in annual fixed costs of $60,000,labour costs of $7 per unit,material costs of $10 per unit,transportation costs of $15 per unit,and revenue per unit of $50.Location B would have annual fixed costs of $80,000,labour costs of $6 per unit,material costs of $9 per unit,transportation costs of $14 per unit,and revenue per unit of $48.
(i)At an annual volume of 9,000,which would yield the higher profit?
(ii)At what annual volume would management be indifferent between the two alternatives in terms of annual profits?
(i)Profits @ 9,000 units a year: A = $102,000; B = $91,000
(ii)$18Q - $60,000 = $19Q - $80,000.Solving,Q = 20,000 units.