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 $305,000 per year, and variable costs would be $510 per boat. Subcontracting would involve a cost per boat of $2,560, and expansion would require an annual fixed cost of $57,000 and a variable cost of $1,100 per boat.
a. Find the range of output for each alternative that would yield the lowest total cost. (Leave no cells blank – be certain to enter “0” wherever required. Round your answers to the nearest whole number.)
| A | or | more | |
| B | to | ||
| C | to | ||
b. Which alternative would yield the lowest total cost for an expected annual volume of 250 boats?
