The Operations Manager Has Narrowed Down the Search for a New

question 163

Essay

The operations manager has narrowed down the search for a new plant to three locations. Fixed and variable costs follow: $$\begin{array} { | l | l | l | } \hline \text { Location } & \text { Fixed Costs } & \text { Variable Costs } \\& \text { Per Year } & \text { Per Unit } \\\hline \text { A } & 70,000 & 25 \\\text { B } & 120,000 & 22 \\\text { C } & 250,000 & 17 \\\hline\end{array}$$ Plot the total cost curves in the chart provided below, and identify the range over which each location would be best. Then use break- even analysis to calculate exactly the break- even quantity that defines each range. $$73$$ a. What is the break- even quantity between A and B?
b. What is the break- even quantity between B and C?

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Definitions:

Open Account

It generally refers to a commercial credit line that allows for the purchase of goods and services without immediate payment, payable at a later date.

Down Payment

An initial payment made when purchasing a good or service, typically a percentage of the total price, with the remainder due later.

Equipment

Tangible items used in the operation or production process of a business.

Financial Statement

A documented summary detailing a company's business operations and financial health, usually encompassing the balance sheet, income statement, and statement of cash flows.