a. At what volume of output would the two locations have the same total cost? b. Which alternative would yield the lowest total cost for an expected annual volume of 150 boats?

Practical Management Science
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ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
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A company that produces pleasure boats has decided to expand one of its lines. Current facilities are insufficient to handle
the increased workload, so the company is considering two alternatives, A (new location), B (expand existing facilities).
Alternative A would involve fixed costs of $250,000 per year, and variable costs would be $500 per boat. Alternative B would
require an annual fixed cost of $50,000 and a variable cost of $1,000 per boat.
a. At what volume of output would the two locations have the same total cost?
b. Which alternative would yield the lowest total cost for an expected annual volume of 150 boats?
Formulas:
Total Cost= FC + VQ
Total Profit= Q (R-V) - FC
Transcribed Image Text:A company that produces pleasure boats has decided to expand one of its lines. Current facilities are insufficient to handle the increased workload, so the company is considering two alternatives, A (new location), B (expand existing facilities). Alternative A would involve fixed costs of $250,000 per year, and variable costs would be $500 per boat. Alternative B would require an annual fixed cost of $50,000 and a variable cost of $1,000 per boat. a. At what volume of output would the two locations have the same total cost? b. Which alternative would yield the lowest total cost for an expected annual volume of 150 boats? Formulas: Total Cost= FC + VQ Total Profit= Q (R-V) - FC
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