Problem:
A manufacturing firm is considering two locations for a plant to produce a new product. The two locations have fixed and variable costs as follows: Atlanta: fixed costs (annual)= 80000, vairable costs (per unit)=20 Phoenix: fixed costs= 140000, variable costs = 16
Required:
Question 1) At what annual output would the company be indifferent between the two locations?
Question 2) What would the total annual costs be for the Phoenix location with an annual output of 10,000 units?
Question 3) What would be the total annual costs at the point of indifference?
Question 4) If annual demand is estimated to be 20,000 units, which location should the company select?
Question 5) If the annual demand will be 20,000 units, what would be the cost advantage of the better location?
Solve the given numerical problem and illustrate step by step calculation.