Location A would result in annual fixed costs of $300,000 and variable costs of $55 per unit. Annual fixed costs at Location B are $600,000 with variable costs of $32 per unit. Sales volume is estimated to be 30,000 units per year
Which location has the lower cost at this volume? How large is its cost advantage? At what volume are the two facilities equal in cost?
At 30,000 units, Location A has total costs of $1,950,000, while Location B has total costs of $1,560,000. Location B is cheaper by $390,000. The crossover occurs where 600,000 + 32X = 300,000 + 55X, or at X = 300,000 / 23 = 13,043 units
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Indicate whether the statement is true or false