A Manufacturing Firm Is Considering Two Locations for a Plant

question 62

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: $$\begin{array} { l r l } \text { Location } & \mathrm { FC } \text { (annual) } & \mathrm { VC } \text { (per unit) } \\\hline \text { Atlanta } & \$ 80,000 & \$ 20 \\\text { Phoenix } & \$ 140,000 & \$ 16\end{array}$$ If annual demand is estimated to be 20,000 units, which location should the company select?

• A) Atlanta
• B) Phoenix
• C) either Atlanta or Phoenix
• D) reject both Atlanta and Phoenix
• E) build at both locations

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Definitions:

Indirect Factory Wages

Wages paid to workers who are not directly involved in production, such as maintenance staff and supervisors.

Selling And Administrative

Expenses related to the selling of products and the management of business operations, not directly tied to production.

Supervisor Salaries

The compensation paid to employees who oversee and manage other workers or operations within a company.

Maintenance

The work done to keep machinery, equipment, or a structure in a condition of efficiency or safety through routine checks, repairs, and cleaning.