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A manufacturing firm is considering two locations for a plant to produce a new product. The two locations have fixed and variable costs as follows: 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?

Respuesta :

(Incomplete Question) The question is missing options to choose from; here are the missing options:

  1. $60,000
  2. $460,000
  3. $20,000
  4. $480,000
  5. $80,000

Answer:

Cost advantage of the better location is $20000 ( Option 4).

Explanation:

Data:

Annual demand = 20000 units.

Fixed cost for Phoenix = $80000.

Variable cost for Phoenix = $20 per unit.

Fixed Cost for Atlanta = $140,000.

Variable cost for Atlanta = $16 per unit.

Step 1: Calculating total costs for both locations:

Phoenix:

[tex]TC = 80000 + 20(20000) = 480,000[/tex]

Atlanta:

[tex]TC = 140,000+ 16(20000) = 460,000[/tex]

Step 2: Subtracting both costs to get cost advantage of better location:

Total cost of Phoenix - Total cost of Atlanta = [tex]480,000 - 460,000 = 20000[/tex]

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