A Manufacturing Company Is Considering Three Expansion Options

question 1

Essay

A manufacturing company is considering three expansion options. The first is to do nothing (Option
A). The next is to leave the current plant open and also open a new larger plant (Option
B). Finally they could close the existing plant and open the new, larger one (Option
C). Given the VC and FC from the table below calculate the range for which each option minimizes cost.
$$\begin{array} { | l | l | l | } \hline\text { Option } & \text { FC } ( \$ ) & \text { VC (\$/unit) } \\\hline \mathrm { A } & 50000 & 2 \\\hline \mathrm { B } & 100000 & 1 \\\hline \mathrm { C } & 60000 & 1.4 \\\hline\end{array}$$

• A). The next is to leave the current plant open and also open a new larger plant (Option
• B). Finally they could close the existing plant and open the new, larger one (Option
• C). Given the VC and FC from the table below calculate the range for which each option minimizes cost.
• \[\begin{array} { | l | l | l | }
• \hline\text { Option } & \text { FC } ( \$ ) & \text { VC (\$/unit) } \\
• \hline \mathrm { A } & 50000 & 2 \\
• \hline \mathrm { B } & 100000 & 1 \\
• \hline \mathrm { C } & 60000 & 1.4 \\
• \hline
• \end{array}\]

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Definitions:

Time-Driven

A term that refers to processes or methodologies that are controlled or measured based on time, such as time-driven activity-based costing.

Activity-Based Costing

An accounting method that assigns costs to products or services based on the activities they require, providing more accurate costing information.

Cost Analysis

This refers to the process and methods used to evaluate the costs associated with a project or a business operation in order to determine its feasibility or cost-efficiency.

Activity Rate

A measure used in activity-based costing to allocate overhead costs to products or services based on specific activities.