William Green, vice president of manufacturing for Computer Products Corporation (CPC), and his staff are studying three Midwestern alternative locations for a new production facility for producing high-resolution scanners. His staff analysts predict that the scanners will be a growing market over the next ten years, and the analysis group shares marketing's enthusiasm for planning facilities for producing this new product line. The analysts have developed these estimates for the three locations:
$\begin{array}{lcc}
&\text {Annual Fixed Costs}&\text {
Variable Cos}\
\underline{\text { Location Alternative }} & \underline{ \text { Millions of Dollars) }} & \underline{\text { per Scanner }}\
\text { Cleveland, Ohio } & \$ 3.9 & \$ 3,400 \
\text { South Bend, Indiana } & 3.6 & 3,700 \
\text { Grand Rapids, Michigan } & 3.1 & 4,000
\end{array}$ The marketing department at CPC estimates sales for the scanners will be 1,000 scanners in the first year, 2,000 in the second year, and 4,000 in the third year.
a. In what range of production capacity would each of the locations be preferred?
b. Use break-even analysis to determine which location would be preferred in Years 1, 2, and 3. Which single location should be chosen and in what year will CPC break even?

Question

William Green, vice president of manufacturing for Computer Products Corporation (CPC), and his staff are studying three Midwestern alternative locations for a new production facility for producing high-resolution scanners. His staff analysts predict that the scanners will be a growing market over the next ten years, and the analysis group shares marketing's enthusiasm for planning facilities for producing this new product line. The analysts have developed these estimates for the three locations:
 $\begin{array}{lcc}
&\text {Annual Fixed Costs}&\text {
Variable Cos}\
\underline{\text { Location Alternative }} & \underline{ \text { Millions of Dollars) }} & \underline{\text { per Scanner }}\
\text { Cleveland, Ohio } & \$ 3.9 & \$ 3,400 \
\text { South Bend, Indiana } & 3.6 & 3,700 \
\text { Grand Rapids, Michigan } & 3.1 & 4,000
\end{array}$ The marketing department at CPC estimates sales for the scanners will be 1,000 scanners in the first year, 2,000 in the second year, and 4,000 in the third year. 
a. In what range of production capacity would each of the locations be preferred?
b. Use break-even analysis to determine which location would be preferred in Years 1, 2, and 3. Which single location should be chosen and in what year will CPC break even?

Quizplus · Accepted Answer

The Answer of William Green, vice president of manufacturing for Computer Products Corporation (CPC), and his staff are studying three Midwestern alternative locations for a new production facility for producing high-resolution scanners. His staff analysts predict that the scanners will be a growing market over the next ten years, and the analysis group shares marketing's enthusiasm for planning facilities for producing this new product line. The analysts have developed these estimates for the three locations:
 $\begin{array}{lcc}
&\text {Annual Fixed Costs}&\text {
Variable Cos}\
\underline{\text { Location Alternative }} & \underline{ \text { Millions of Dollars) }} & \underline{\text { per Scanner }}\
\text { Cleveland, Ohio } & \$ 3.9 & \$ 3,400 \
\text { South Bend, Indiana } & 3.6 & 3,700 \
\text { Grand Rapids, Michigan } & 3.1 & 4,000
\end{array}$ The marketing department at CPC estimates sales for the scanners will be 1,000 scanners in the first year, 2,000 in the second year, and 4,000 in the third year. 
a. In what range of production capacity would each of the locations be preferred?
b. Use break-even analysis to determine which location would be preferred in Years 1, 2, and 3. Which single location should be chosen and in what year will CPC break even?

William Green, Vice President of Manufacturing for Computer Products Corporation