Question

A manufacturing company preparing to build a new plant is considering three potential
locations for it. The fixed and variable costs for the three alternative locations are
presented below.
a. Complete a numeric locational cost-volume analysis.
b. Indicate over what range each of the alternatives A, B, C is the low-cost choice.
c. Is any alternative never preferred? Explain.
Costs
Fixed (S)
Variable ($ per unit)
A
B
с
2.500.000 2.000.000 3.500.000
21
25
15
B is cheapest up to 125,000 units; C is cheapest after 166,667 units. A is cheapest in
between. The B-C crossover is not relevant. Thus each alternative has an attractive
range​

Answer 1

Answer:

A-B

2500000+21 = 2000000+25

                   4 = 500000

             Unit =  125000

A-C

2500000+21 = 3500000+15

                   6 = 1000000

              Unit = 166666.6667

B-C

2000000+25 = 3500000+15

                  10 = 1500000

               Unit = 150000

A-B

2500000+(21 x 125000)

= 5125000 dollars

A-C

2500000+(21 x 166666.6667)

= 6000000 dollars  

B-C

2000000+(25 x 150000)

= 5750000 dollars  

Explanation:

A-B is cheapest between A-c and B-C. B-c crossover is not relevant. Thus each alternative has an attractive range.