Question

. Location A would result in annual fixed costs of $300,000 and variable costs of $55 per unit. Annual fixed costs at Location B are $600,000 with variable costs of $32 per unit. Sales volume is estimated to be 30,000 units per year. At what volume are the two facilities equal in cost?

Answer 1

Answer:

13,043.48 units

Explanation:

Cost Equation calculate the total cost of the products produced / sold in a period. It adds the variable cost of the given numbers of units and Fixed cost for the period to calculate the total cost.

The Total Cost Can be Calculated using following Equation.

y = mx + b

y = Total cost

m = variable cost

b = fixed cost

x = quantity of unit produced / sold

Placing Values in the cost equation at each location.

Location A

y = $55x + $300,000

Location B

y = $32x + $600,000

According to given condition

Cost of Location A = Cost of Location B

$55x + $300,000 = $32x + $600,000

$55x - $32x = $600,000 - $300,000

$23x = $300,000

x= $300,000 / $23 = 13,043.48 units

Check

y = $55 x 13,043.48 + $300,000 = $717,391.4 + $300,000 = $1,017,391.4

Location B

y = $32x 13,043.48 + $600,000 = $417,391.4 + $600,000 = $1,017,391.4