Question

A manufacturing facility is considering two location alternatives, X and Y. At location X, fixed costs would be $5,000,000 per year and variable costs would be $0.30 per unit. At location Y, fixed costs would be $4,600,000 per year and variable costs would be $0.40 per unit. If annual demand is expected to be 10 million units, which location should be chosen

Answer 1

Answer:

As total amount at location x is less than y hence location x is favorable

Explanation:

Given data;

for location X

Fixed costs is $5,000,000 per year

variable cost is $0.30/unit

for location Y

Fixed costs is $4,600,000 per year

variable cost is $0.40/unit

Annual demand is 10 million units

total cost for total units at location x = 5,000,000 + 0.30 ×10,000,000

total cost  = $8,000,000

total cost for total units at location y = 4,600,000 + 0.30 ×10,000,000

total cost  = $7,600,000

As total amount at location x is less than y hence location x is favorable