A Firm Is Considering Two Location Alternatives

question 78

Multiple Choice

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 cost per unit.
• E)Neither Plant A nor Plant B,because the crossover point is at 10 million units.

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Definitions:

Operating Results

The summary of a company's revenues, expenses, and net income or loss for a specific period of time, reflecting its business performance.

Expected Results

Anticipated outcomes or performance measurements, based on planned activities, goals, or strategies.

Management Process

The five basic management functions of (1) planning, (2) directing, (3) controlling, (4) improving, and (5) decision making.

Basic Phases

Fundamental stages or steps in a process or cycle.