Answer:
Cost Advantage of different locations:
b. $20,000
Phoenix certainly had a cost advantage over Atlanta and based on this factor, it should be chosen for the new plant instead of any other city.
Explanation:
a) Total Costs of different locations:
Atlanta Phoenix
Fixed Cost $80,000 $140,000
Variable cost 400,000 320,000
Total Costs $480,000 $460,000
b) Variable costs
Atlanta Phoenix
Annual Demand 20,000 20,000
Variable cost/unit $20 $16
Total variable cost $400,000 $320,000
c) Cost Advantage is the competitive edge which location (or company) can have over another through reduced production or marketing costs or both so that it can offer cheaper prices or use excess profits to bolster promotion or distribution. In this case, the comparison is on the total cost, which is made of variable and fixed costs.
