A Spirits Manufacturer Is Considering Two Potential Production Investments: Option

question 183

Multiple Choice

A spirits manufacturer is considering two potential production investments: Option A costs an initial $2 billion and will involve variable costs (labor and material) of $5 per bottle of spirits.Option B costs an initial $4 billion and will involve variable costs (labor and material) of $3 per bottle of spirits.Assuming an annual capital charge equal to 10 percent of the initial costs,what is the average fixed cost at production level of 20,000,000 bottles per year for the Option B facility?

• A)$3.
• B)$20.
• C)$23.
• D)$10.

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Definitions:

Material Handling Expenses

Costs incurred in the process of moving, protecting, storing, and controlling materials and products throughout manufacturing, warehousing, distribution, consumption, and disposal.

Scrap Collection

The process of gathering waste materials or unwanted products for recycling or disposal.

Handling of Scrap

The management, processing, and recycling or disposal of waste materials or defective products produced by manufacturing processes.

Cost Savings

The reduction of expenses achieved through efficient management and operations strategies, leading to increased profits.