Fall-Line, Inc., is a Great Falls, Montana, manufacturer of a variety of downhill skis. Fall-Line is considering four locations for a new plant: Aspen, Colorado; Medicine Lodge, Kansas; Broken Bow, Nebraska; and Wounded Knee, South Dakota. Annual fixed costs and variable costs per pair of skis are shown in the following table: Location Annual Fixed Costs Variable Cost per Pair Aspen Medicine Lodge Broken Bow Wounded Knee $8,000,000 $2,400,000 $3,400,000 $4,500,000 $250 $130 $90 $65 a. Plot the total cost curves for all the communities on a single graph. Identify on the graph the range in volume over which each location would be best.b. What break-even quantity defines each range? Although Aspen’s fixed and variable costs are dominated by those of the other communities, Fall-Line believes that both the demand and the price would be higher for skis made in Aspen than for skis made in the other locations.The following table shows those projections: Location Price per Pair Forecast Demand per Year Aspen Medicine Lodge Broken Bow Wounded Knee $500 $350 $350 $350 60,000 pairs 45,000 pairs 43,000 pairs 40,000 pairs c. Determine which location yields the highest total profit per year. d. Is this location decision sensitive to forecast accuracy? At what minimum sales volume does Aspen become the location of choice?
Fall-Line, Inc., is a Great Falls, Montana, manufacturer of a variety of downhill skis. Fall-Line is considering four locations for a new plant: Aspen, Colorado; Medicine Lodge, Kansas; Broken Bow, Nebraska; and Wounded Knee, South Dakota. Annual fixed costs and variable costs per pair of skis are shown in the following table:
| Location | Annual Fixed Costs | Variable Cost per Pair |
|
Aspen Medicine Lodge Broken Bow Wounded Knee |
$8,000,000 $2,400,000 $3,400,000 $4,500,000 |
$250 $130 $90 $65 |
a. Plot the total cost
b. What break-even quantity defines each range? Although Aspen’s fixed and variable costs are dominated by those of the other communities, Fall-Line believes that both the demand and the price would be higher for skis made in Aspen than for skis made in the other locations.
The following table shows those projections:
| Location | Price per Pair | |
|
Aspen Medicine Lodge Broken Bow Wounded Knee |
$500 $350 $350 $350 |
60,000 pairs 45,000 pairs 43,000 pairs 40,000 pairs |
c. Determine which location yields the highest total profit per year.
d. Is this location decision sensitive to forecast accuracy? At what minimum sales volume does Aspen become the location of choice?
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