Problem 9 c and d

Break-Even Analysis 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: 8. Two alternative locations are under consideration for a new plant: Jackson, Mississippi, and Dayton, Ohio. The Jackson location is superior in terms of costs. However, management believes that sales volume would decline if this location were chosen because it is farther from the market, and the firm's customers prefer local suppli- ers. The selling price of the product is $250 per unit in either case. Use the following information to determine which location yields the higher total profit per year: Annual Variable Cost Forecast Demand Location Fixed Cost per Unit Jackson $1,500,000 $50 30,000 units Dayton $2,800,000 $85 40,000 units Location Aspen Boyne City Price per Palr $500 $350 Forecast Demand per Year 60,000 pairs 45,000 pairs 43,000 pairs 40,000 pairs Portland $350 per Year Lake Tahoe $350 Foll-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: Boyne City, Michigan: Portland, Oregon; and Lake Tahoe, Call- fornia. Annual fixed costs and variable costs per pair of skis are shown in the table: C. Determine which location yields the highest total profit per year. d. Is this location decision sensitive to forecast accu- racy? At what minimum sales volume dous Aspen become the location of choice? 10. Wiebe Trucking, Inc., is planning a new warehouse to serve the western United States. Denver, Santa Fe, and Salt Lake City are under consideration. For each loca- tion, annual fixed costs (rent, equipment, and insur- ance) and average variable costs per shipment (labor transportation, and utilities) are listed in the following table. Sales projections range from 550,000 to 600,000 shipments per year. Location Aspen Boyne City Annual Fixed Costs $8,000,000 $2,400,000 $3,400,000 $4,500,000 Varlablo Cost per Palr $250 $130 $90 $65 Portland Location Lake Tahoe Variable Cost per Shipment $4.65 $6.25 Annual Fixed Costs $5,000,000 $4,200,000 $3,500,000 Denver Santa Fe Salt Lake City $7.25 a. Plot the total cost curves for all the communities on a single graph (sco Solved Problem 2). 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 domi- nated by those of the other communities, Fall-Line a. Plot the total cost curves for all the locations on a single graph. b. Which city provides the lowest overall costs? D = Difficult