Question

This Question: 2 pts of so completo) As two coube and would be w o OA Part A be s cheeran Pantal volumes below 10,000,000 units OB P A , because it is the than Plan for alvolumes OC Plant because cheaper than for alvores below 10.000.000 ODP .bech o s per OE Plant became the Corporis milioni

Answer 1

Fixed Cost for a plant will be same for any production volume. So, fixed cost will not depend on production volume.

Ex: Building rent, bank loan interest, Permanent employee salary will not varry with respect to the production volume.

Variable cost is the cost which directly depends on the production volume.

Ex: Material cost, Packeging cost, Daily wages etc will directly depends on the production volume

Total Cost = Fixed cost + Variable cost * No. of Units

For 9000000 units of production total cost for plant 'A' = 4000000 + 0.3*9000000 = 6700000

For 9000000 units of production total cost for plant 'B' = 3600000 + 0.34*9000000 = 6600000

Since the total cost of plant 'B' is lesser than plant 'A' so we should go for plant 'B'

Let at 'x' units of production, the total cost for both the plants will be same (means 'x' is the break even point)

4000000+x*0.3 = 3600000+0.34*x

x = 10000000

Plant Fixed Cost Total Cost Variable Cost per Unit 0.3 4000000 6700000 B 3600000 0.34 6660000

Answer: C