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    Fixed Cost & Variable Cost & Demand Problem

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    How to calculate demand requirements for Alternative B. See attached file for full problem description.

    © BrainMass Inc. brainmass.com December 24, 2021, 6:20 pm ad1c9bdddf
    https://brainmass.com/business/finance/fixed-cost-variable-cost-demand-problem-107395

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    SOLUTION This solution is FREE courtesy of BrainMass!

    Please see the attached file.

    Part a:
    For plan A: Total variable cost per day = total demand per day (yd3)*variable cost per yd3
    = (20000 + 7000 + 6000)*$1.5 = $49,500
    Fixed cost per day = $20,000
    Total cost for plan A per day = 49500 + 20000 = $69,500

    For plan B: Total variable cost per day = demand at site 1*variable cost for site 1 + demand at site 2*variable cost for site 2 + demand at site 3*variable cost for site 3
    = 20000*$1.0 + 7000*$1.1 + 6000*$1.2 = $34,900
    Total fixed cost per day = 15000 + 7000 + 7000 = $29,000
    Total cost for plan B per day = 34900 + 29000 = $63,900

    Select plan B

    Part b:
    If sales were to increase to capacity total demand for plan A = capacity of plan A = 40000
    Demand for plan B = capacity at site 1 + capacity are site 2 + capacity at site 3
    = 24000 + 8000 + 8000 = 40000
    For plan A total cost per day = 40000*$1.5 + $20,000 = $80,000 (see computations in part a)
    For plan B total cost per day = 24000*$1.00 + 8000*$1.1 + 8000*$1.2 + $29000 = $71,400
    (Note that capacity is used in place of demand compared to part a)

    Select plan B

    Part c:
    Variable cost for plan A = $1.5.
    Iso-cost lines mean slopes are same, but total cost is different. Slope is decided by variable cost per yd3 and total cost is decided by fixed and variable cost*quantity. Slope of cost line for plan A is $1.5 (variable cost). Slope of cost line for plan B is total variable cost per day i.e. 24000*$1.00 + 8000*$1.1 + 8000*$1.2 = $42,400 divided by total demand i.e. 40000, hence slope of cost line for plan B = $42,400/40000 = $1.06.
    Variable cost per yd3 for plan B may increase by slope of cost line for plan A - slope of cost line for plan B = $1.5 - $1.06 = $0.44 (increase in variable cost for plan B).

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 6:20 pm ad1c9bdddf>
    https://brainmass.com/business/finance/fixed-cost-variable-cost-demand-problem-107395

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