Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:A firm is considering two location alternatives. At location A, fixed costs would be
$4,000,000 per year, and variable costs $0.30 per unit. At alternative B, fixed costs would
be $3,600,000 per year, with variable costs of $0.34 per unit. If annual demand is
expected to be 9 million units, which plant offers the lowest total cost?
Plant B, because it has the lower variable cost per unit.
Plant A, because it is cheaper than Plant B for all volumes below 10,000,000
units.
Plant A, because it is cheaper than Plant B for all volumes.
Plant B, because it is cheaper than Plant A for all volumes below 10,000,000
units.
Neither Plant A nor Plant B, because the crossover point is at 9 million
units.
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