Question

Hugh Leach? Corp., a producer of machine? tools, wants to move to a larger site. Two alternative locations have been? identified: Bonham and Mckinney. Bonman would have fixed cost of $800,000 per year and variable cost of $14,000 per standard unit produced. Mckinney would have annual cost of $920,000 and variable cost of $13,000 per standard unit. The finished items sell for $29,000 each.

a) The volume of output at which both the locations have the same profit = _____ ?? Standard units

Answer 1

Since product produced from either of the location sells at same price per unit, total cost of production at both locations need to be same to generate same profit from both locations .

Total cost of production at any location = Fixed cost + Variable cost / unit x Number of units to be produced

Let relevant number of units to be produced which generates same total cost at both locations = N

Therefore ,

Total cost of production at Bonham = $ 800,000 + $14,000.N

Total cost of production at Mckinney = $920,000 + $13,000.N

Therefore ,

800,000 + 14,000 N = 920,000 + 13,000.N

Or, 1000.N = 120,000

Or, N = 120

VOLUME OF OUTPUT AT WHICH BOTH LOCATIONS WOULD HAVE THE SAME PROFIT = 120