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:

Detained

Held or kept in custody, often by authorities for legal or security reasons.

Intentional Tort

A wrongful act, done with the intent to cause harm to another, that results in injury or damage.

Reasonable Care

The standard of care that a prudent person would use in similar circumstances, often referenced in negligence cases.

Negligence

A failure to behave with the level of care that someone of ordinary prudence would have exercised under the same circumstances, resulting in harm.