Question 2

a. Quantity = 10,000

Location Fixed Cost Variable Cost Total Cost

A $275,000 $12(10000) $395,000
B $100,000 $30(10000) $400,000
C $160,000 $25(10000) $410,000
D $200,000 $20(10000) $400,000

Fixed Cost
Total Cost
in
A in
Thousands
Thousands
S
u
p
e
B Superior
r
i
o

Quantity in Thousands

b. B is superior till 6500 quantity. After 6500 quantities, A is superior.

c. If expected output at the selected location to be 8000 per units per year,

Location Fixed Cost Variable Total Cost

Cost
A $275,000 $12(8000) $371,000
B $100,000 $30(8000) $340,000
C $160,000 $25(8000) $360,000
D $200,000 $20(8000) $360,000

B will give the lowest total cost.