Community Fixed Costs per Year Variable Costs per Unit A $150,000 $62 B $300,000 $38 $500,000 $24 $600,000 $30
An operations manager narrowed the search for a new facility location to four communities. The annual fixed
costs (land, property taxes, insurance, equipment, and buildings) and the variable costs (labor, materials, trans-
portation, and variable overhead) are as follows:
Notice that no community dominates the set of alternatives; that is, no community has both the lowest
fixed costs and the lowest variable costs per unit. If that were so, that community would be the best location.
Step 1. Plot the total cost
approximate volume range over which each community provides the lowest cost.
Step 2. Using break-even analysis, calculate the break-even quantities over the relevant ranges. If the
expected demand is 15,000 units per year, what is the best location?
Step by step
Solved in 2 steps with 3 images
