Peter Billington Stereo, Inc., supplies car radios to auto manufacturers and is going to open a new plant. The company is undecided between Detroit and Dallas as the site. The fixed costs in Dallas are lower due to cheaper land costs, but the variable costs in Dallas are higher because shipping distances would increase. Given the following costs:
|
Cost
|
Dallas
|
Detroit
|
|
Fixed costs
|
$600,000
|
$800,000
|
|
Variable costs
|
$28/radio
|
$22/radio
|
a) Perform an analysis of the volume over which each location is preferable.
b) How does your answer change if Dallas's fixed costs increase by 10%?