Acme Corp Makes Vending Machines for Small Companies

question 33

Essay

Acme Corp. makes vending machines for small companies. They have recently started selling their vending machines in Southern California, with a great deal of success, at a price of $5,000 per machine. The company is convinced that they will need to either build a new plant near San Diego or expand their existing plant in New Orleans. If they build a new plant near San Diego, the annual fixed costs will be $6,000,000 and the variable costs will be $3,000 for each vending machine delivered to Southern California. If they expand the New Orleans plant, their annual fixed costs for the expansion will be $2,000,000 and the variable costs will be $4,000 for each vending machine delivered to Southern California.
(a) Determine the break-even quantity for building the new plant near San Diego.
(b) Determine the break-even quantity for expanding the plant in New Orleans.
(c) At what output will the two locations have the same total cost?
(d) Assume that the demand forecast is less than the output in part c. Which option should the company choose?

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Definitions:

Blinking Eyes

The rapid opening and closing of the eyelid, a reflex mechanism to spread tears and protect the eye from irritants.

Modern Behaviorists

Psychologists who study behavior through the lens of learning principles, often focusing on observable behavior rather than internal mental processes.

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The transmission of genetic characteristics from parents to offspring.

Environmental Factors

External elements that can influence the development or behavior of individuals, including social, cultural, and physical aspects.