A Manufacturing Firm Is Considering Two Locations for a Plant

question 21

Multiple Choice

A manufacturing firm is considering two locations for a plant to produce a new product. The two locations have fixed and variable costs as follows

At what annual output would the company be indifferent between the two locations?

• A)60,000 units
• B)15,000 units
• C)10,000 units
• D)20,000 units
• E)4,000 units

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Definitions:

Operating Capacity

The maximum output a company can produce using its current resources without compromising quality or efficiency.

Sales Projection

An estimate of the sales revenue that a company expects to achieve in a future period.

Retained Earnings

Profits that a company has kept or retained rather than distributed to shareholders in the form of dividends.

Debt to Equity Ratio

A measure of a company's financial leverage calculated by dividing its total liabilities by shareholder equity, indicating the proportion of equity and debt used to finance a company's assets.