Peggy Lane Corp., a producer of machine tools,wants to move to a larger site. Two alternative locations havebeen identified: Bonham and McKinney. Bonham would havefixed costs of $800,000 per year and variable costs of $14,000per standard unit produced. McKinney would have annual fixedcosts of $920,000 and variable costs of $13,000 per standard unit.The finished items sell for $29,000 each.a) At what volume of output would the two locations have thesame profit?b) For what range of output would Bonham be superior (havehigher profits)?c) For what range would McKinney be superior?d) What is the relevance of break-even points for thesecities?
Peggy Lane Corp., a producer of machine tools,wants to move to a larger site. Two alternative locations havebeen identified: Bonham and McKinney. Bonham would havefixed costs of $800,000 per year and variable costs of $14,000per standard unit produced. McKinney would have annual fixedcosts of $920,000 and variable costs of $13,000 per standard unit.The finished items sell for $29,000 each.a) At what volume of output would the two locations have thesame profit?b) For what range of output would Bonham be superior (havehigher profits)?c) For what range would McKinney be superior?d) What is the relevance of break-even points for thesecities?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Peggy Lane Corp., a producer of machine tools,
wants to move to a larger site. Two alternative locations have
been identified: Bonham and McKinney. Bonham would have
fixed costs of $800,000 per year and variable costs of $14,000
per standard unit produced. McKinney would have annual fixed
costs of $920,000 and variable costs of $13,000 per standard unit.
The finished items sell for $29,000 each.
a) At what volume of output would the two locations have the
same profit?
b) For what range of output would Bonham be superior (have
higher profits)?
c) For what range would McKinney be superior?
d) What is the relevance of break-even points for these
cities?
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