Question

a manufacturing firm is considering two locations for a plant to produce a new product. the two locations have fixed and variable costs as folls location FC(ANNUAL) VC(per unit) atlanta $80,000 $20 phoenix $140,000 $16 IF THE ANNUAL DEMAND WILL BE 20,000 units, what would be the cost advantage of the better location? HINT: compare the total costs a 60000 b 20000 c 460000 d 40000

Answer 1

b $20,000

Step-by-step explanation:

For computation of cost advantage first we need to find out the total cost of Atlanta and Phoenix which is shown below:-

Total cost = Fixed cost + (Variable cost × Number of units)

For Atlanta

The Total cost = $80,000 + ($20 × 20,000)

= $480,000

For Phoenix

The ​​​​​​​Total cost = $140,000 + ($16 × 20,000)

= $460,000

According to the above calculation, Phoenix is best location because it has lower total cost.

So

The Cost advantage at Phoenix = Total cost of Atlanta - Total cost of Phoenix

= $480,000 - $460,000

= $20,000