Ang company that produces pleasure boats has decided to expand one of its lines.
ID: 3011731 • Letter: A
Question
Ang company that produces pleasure boats has decided to expand one of its lines. The company is considering three Location alternatives. The cost structure for each location is given as shown in the table. a) The range of output for location alternative 1 that would yield the lowest total cost is (Ex. In whole number, use Q, = to specify the range) b) The range of output for location alternative 2 that would yield the lowest total cost is (Ex. In whole number, use Q, = to specify the range) c) The range of output for location alternative 3 that would yield the lowest total cost is (Ex. In whole number, use Q, = to specify the range) d) The alternative would yield the lowest tolls cost for an expected annual volume of 9505 boats is location (Ex. type in as L1, L2, or L3)Explanation / Answer
Let Q denote the range of output and 'x' denote the units sold
a) For L1, Fixed Cost = 8,500
Therefore, Min. cost = 8,500
Variable cost for x units = 3.2x
Therefore, range (Q) is - 8,500 < Q < 8,500 + 3.2x
b) Similarily, for L2
6,500 < Q < 6,500 + 4.3x
c) And for L3
13,500 < Q < 13,500 + 2.5x
d) When x = 9505
Total cost for L1 = 8500 + 3.2*9505 = 38,916
Total cost for L2 = 6,500 + 4.3*9505 = 47,371.50
Total cost for L3 = 13,500 + 2.5*9505 = 37,262.50
Therefore, the lowest total cost is for alternative L3 for annual volume of 9505 units