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Which plant offers the lowest total cost in the case below(and why)?



A firm is considering two location alternatives. At location A, fixed costs would be $4,000,000 per year, and variable costs 0.30 per unit. At alternative B, fixed costs would be $3,600,000 per year, with variable costs of $0.35 per unit. If demand is expected to be 10 million units.

A. . Plant A, because it is cheaper than Plant B for all volumes under 10,000,000 units
B. Plant B, because it is cheaper than Plant A for all volumes over 10,000,000 units
C. Plant A, because it is cheaper than Plant B for all volumes
D. Plant B, because it has the lower variable cost per unit
E. Neither Plant A nor Plant B, because the crossover point is at 10 million units

This question is part of Operations Management Quiz 2
Asked by Operationsmanagement, Last updated: Jun 28, 2020

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1 Answer

John Smith

John Smith

Answered Feb 14, 2017

Plant B, because it is cheaper than Plant A for all volumes over 10,000,000 units
 

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