Question

Companies opting to differentiate their branded footwear from rival brands by offering buyers 500 models/styles to choose from should consider reducing the $14 mil annual costs for production run setup costs associated with producing 500 models at each plant by

Answer 1

To reduce the $14 million annual costs for production run setup costs associated with producing 500 models at each plant and offer 500 models/styles, the company should consider implementing economies of scale and consolidating production at plants with lower average costs.

Step-by-step explanation:

When considering the option of offering buyers 500 models/styles to choose from, a company should weigh the potential benefits against the production costs. The annual production run setup costs associated with producing 500 models at each plant amount to $14 million. To reduce these costs, the company could consider streamlining its production process by implementing economies of scale. This means focusing production at a few plants that have lower average costs, such as production plant L which has an average cost of production of $10 per toaster oven. By consolidating production and reducing the number of plants involved, the company can achieve cost savings.