Question

Peter Billington Stereo, Inc.supplies car radios to auto manufacturers and is going to open a new plant. The company is undecided between Detroit and Dallas as the site. The fixed costs in Dallas are lover due to cheaper land costs, but the variable costs in Dallas are higher because shipping distances would increase. Given the following costs: Dallas DetroitFixed Costs 560,000 780,000Variable Costs $30 / radio $22 / radioA. Based on the Analysis of the volume, after rounding the numbers to the nearest whole number, Dallas is best and below and Detroit is best above ? B. Dalla's fixed costs increase by 10%. Based on the Analysis of the volume, after rounding the numbers to the nearest whole number, Dallas is best and below and Detroit is best above ?

Answer 1

Answer:

A. $27,500

B. $20,500

Explanation:

A. The computation is shown below:

= (Fixed cost of Detroit - Fixed cost of Dallas) ÷ (Variable cost of Dallas - Variable cost of Detroit)

= ($780,000 - $560,000) ÷ ($30 - $22)

= ($220,000) ÷ ($8)

= $27,500

B. The computation is shown below:

= (Fixed cost of Detroit - Fixed cost of Dallas) ÷ (Variable cost of Dallas - Variable cost of Detroit)

= ($780,000 - $616,000) ÷ ($30 - $22)

= ($164,000) ÷ ($8)

= $20,500

The Dalla fixed cost is increased by 10%, so the new fixed cost would be

= $560,000 + $560,000 × 10%

= $560,000 + $56000

= $616,000