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ChaosMind
ChaosMind
26.02.2021 • 
English

A company that produces pleasure boats has decided to expand one of its lines. Current facilities are insufficient to handle the increased workload, so the company is considering three alternatives, A (new location), B (subcontract), and C (expand existing facilities).Alternative A would involve substantial fixed costs but relatively low variable costs: fixed costs would be $310,000 per year, and variable costs would be $400 per boat. Subcontracting would involve a cost per boat of $3,200, and expansion would require an annual fixed cost of $74,000 and a variable cost of $1,200 per boat.Expansion would result in an increase of $88,000 per year in transportation costs, subcontracting would result in an increase of $32,000 per year, and adding a new location would result in an increase of $5,300 per year.Which alternative would yield the lowest total cost for an expected annual volume of 111 boats? Expected annual volume is 150boat

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