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, transportation, and variable overhead) are as follows:Community Fixed Costs per Year Variable Costs per UnitA $150,000 $62B $300,000 $38C $500,000 $24D $600,000 $30Notice 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 curves for all the communities on a single graph. Identify on the graph the 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?
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, transportation, and variable
Community Fixed Costs per Year Variable Costs per Unit
A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30
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
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?
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