A manufacturing company is considering two alternative locations for a new facility. The fixed and variable costs for the two locations are found in the table below
For which volume of business would the two locations be equally attractive? If the company plans on producing 50,000 units, which location would be more attractive?
Glen Rose Mesquite
Fixed Costs $1,000,000 $1,500,000
Variable Costs ($ per unit) 25 23
Crossover is at 250,000 units. Below the crossover, Glen Rose must be cheaper as it has the lower fixed cost. Thus, for an estimated unit volume of 50,000, Glen Rose should be chosen.
Break-even points Units Dollars
Option 1 vs. Option 2 250,000 7,250,000
Volume analysis at 50,000 units
Option 1 Option 2
total cost $2,250,000.00 $2,650,000.00
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