Answered Essay: A company that produces pleasure boats has decided to expand one of its lines. Current facilities

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?

Expert Answer


A) Refer to Image attached

B) option C which is expanding ($332,000) will bear the lowest total cost for an expected annual volume of 250 boats

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