Question

The Vienna Company has identified four locations to set up a new production facility. They have determined the fixed and variable costs associated with each location as follows:

Location Annual Fixed Cost ($) Unit Variable Cost ($)
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Philadelphia 25,000 5
Atlanta 15,000 6
Miami 50,000 4
Houston 60,000 7

Which city has no cost advantage at all?

(i) Which plant location is best if demand is 30,000 units? Do not round intermediate calculations. Round your answer to the nearest dollar. It is cheaper to produce at the Plant with a total cost of $

Answer 1

The best location for the Vienna Company to set up a new production facility at a demand of 30,000 units is Miami, with the lowest total cost of $170,000.

Step-by-step explanation:

To determine which plant location is the best for the Vienna Company if the demand is 30,000 units, we need to calculate the total cost for each location by adding the fixed cost to the product of the unit variable cost and the number of units.

• Philadelphia: Total Cost = $25,000 + ($5 × 30,000) = $175,000
• Atlanta: Total Cost = $15,000 + ($6 × 30,000) = $195,000
• Miami: Total Cost = $50,000 + ($4 × 30,000) = $170,000
• Houston: Total Cost = $60,000 + ($7 × 30,000) = $270,000

It is cheaper to produce at the Miami plant with a total cost of $170,000.

Regarding the question of which city has no cost advantage, we would need more context to determine which factors, aside from cost, give an advantage to a location, such as market access, availability of skilled labor, regulatory environment, and other considerations impacting operational efficiency.