Q. CEO of the Cola King Bottling Company is Hero Nakamura, it is a small regional producer operating in the Pacific Northwest. Nakamura is considering 2 substitute expansion proposals:
1. Construct a single bottling plant in Phoenix, Arizona with a capacity of 40,000 cases per month, at a monthly fixed cost of $20,000 as well as a variable cost of $2.50 for every case.
2. Construct 3 plants, 1 each in Phoenix, Arizona; Las Vegas, Nevada; as well as Albuquerque, New Mexico, with capacities of 15,000, 14,000 as well as 13,000 respectively; as well as monthly fixed costs of $11,000, $10,000 as well as $9,000 each. Variable costs would be only $2.30 per case due to lower distribution costs, but sales from each plant would be limited to demand as well as within the home state. Total predictable monthly sales volume in southwestern states is 37,000 cases, it is distributed as: Arizona, 15,000 cases; Nevada, 14,000 cases; as well as New Mexico, 8,000 cases.
A. Using a wholesale cost of $4 per case in each state, calculate the breakeven output quantities for each alternative.
B. Explain which alternative expansion scheme should Cola King follow?
C. If sales raises to production capacities, illustrate which alternative would prove to be more profitable?