Question

A manufacturing firm is considering two locations for a plant to produce a new product. The two locations have fixed and variable costs as follows:
Location FC (annual) VC (per unit)
Atlanta $ 80,000 $ 20
Phoenix $ 140,000 $ 16

At what annual output would the company be indifferent between the two locations?

(A) 60,000 units
(B) 4,000 units
(C) 20,000 units
(D) 15,000 units
(E) 10,000 units

Answer 1

Answer:

D) 15,000

Explanation:

As we know variable cost varies according to volume of units. And when we multiply 15,000 with 20 and 16 respectively we get 300,000 and 240,000. There is 60,000 difference between them which the same with the difference of fixed costs. Let's sum total fixed and variable costs:

For Atlanta: 80,000+300,000=380,000

For Phoenix: 140,000+240,000=380,000.