Lowest total cost
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A company that produces pleasure boats has decided to expand one of its lines. Current facilities are insufficient to handle the increased workload, so the company is considering three alternatives. A (new location), B (subcontract), and C (expand existing facilities).
Alternative A would involve substantial fixed costs but relatively low variable costs: fixed costs would be $300,000 per year, and variable costs would be $570 per boat. Subcontracting would involve a cost per boat of $2550, and expansion would require an annual fixed cost of $61,000 and a variable cost of $1,070 per boat.
a. Find the range of output for each alternative that would yield the lowest total cost. (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to the nearest whole number.)
A. ______ or more.
B. ______ to _____.
C. ______ to _____. .......I found the answers but not sure what formula I need to work to get these? Please help, I need to know how to work this!
Here are the answers
A. 478 or more
B. 0 to 41
C. 44 to 478
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Solution Summary
Answered in 259 words. A graph and equations are provided. Step-by-step explanations are given. Two pdf files are attached.
Solution Preview
Create an equation from each of the alternatives using
Total cost = (Variable cost) X Quantity + (Fixed cost)
The equations are shown below. TC stands for total cost. Q stands for Quantity
Alternative Fixed cost Variable cost Equation
A 300,000 570 TC = 570Q + 300,000
B 0 2,550 TC = 2,550Q
C 61,000 1,070 TC = 1,070Q + ...
Education
- MSc, California State Polytechnic University, Pomona
- MBA, University of California, Riverside
- BSc, California State Polytechnic University, Pomona
- BSc, California State Polytechnic University, Pomona
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