Question

You have been assigned to make a recommendation about whether to build a factory manufacturing facility in Arkansas or New Jersey. Average production is estimated at 60,000 units per year. Estimations for cost factors were observed by obtaining cost data over the past year. Fixed costs including the financing of building and equipment, property taxes and insurance as well as overhead staff. Variable costs include repair product development, direct labor, shipping in and out. Our analysis indicated the following costs: Arkansas New Jersey Fixed $3,753,000 $2,221,000 Variable $52.73 $74.99 The difference in cost for production between New Jersey and Arkansas when manufacturing 75000 units is

Answer 1

The differential cost is $4,369,250 in favor of New Jersey

Step-by-step explanation:

Giving the following information:

Arkansas:

Fixed costs=$3,753,000

Variable costs= $52.73

New Jersey:

Fixed costs= $2,221,000

Variable costs= $14.99

If the production is 75000 units

Arkansas= 3753000+ 52.73*75000= $7707750

New Jersey= 2221000+14.9*75000= $3338500

The differential cost is $4,369,250 in favor of New Jersey