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 wouldbe $3,600,000 per year, with variable costs of $0.34 per unit. If annual demand isexpected to be 9 million units, which plant offers the lowest total cost?Plant B, because it has the lower variable cost per unit.Plant A, because it is cheaper than Plant B for all volumes below 10,000,000units.Plant A, because it is cheaper than Plant B for all volumes.Plant B, because it is cheaper than Plant A for all volumes below 10,000,000units.Neither Plant A nor Plant B, because the crossover point is at 9 millionunits.

Alternative A: Fixed Cost = $4,000,000 Variable Cost = $0.30 per unit Expected annual demand = 9…

Answered: A firm is considering two location…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 4P

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Shelby Industries has a capacity to produce 45.000 oak shelves per year and is currently selling 40,000 shelves for $32 each. Martin Hardwoods has approached Shelby about buying 1,200 shelves for a new project and is willing to pay $26 each. The shelves can be packaged in bulk; this saves Shelby $1.50 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $27 with fixed costs of $350,000. Because the shelves dont require packaging, the unit variable costs for the special order will drop from $27 per shelf to $25.50 per shelf. Shelby has enough idle capacity to accept the contract. What is the minimum price per shelf that Shelby should accept for this special order?
The J.R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The companys president must determine whether to make the expansion a medium- or large-scale project. Demand for the new product is uncertain, which for planning purposes may be low demand, medium demand, or high demand. The probability estimates for demand are 0.20, 0.50, and 0.30, respectively. Letting x and y indicate the annual profit in thousands of dollars, the firms planners developed the following profit forecasts for the medium-and large-scale expansion projects. a. Compute the expected value for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of maximizing the expected profit? b. Compute the variance for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of minimizing the risk or uncertainty?
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