Excel Products is planning a new warehouse to serve the Southeast.Locations A,B,and C are under consideration.Fixed and variable costs follow: Plot the total cost curves in the chart provided below,and identify the range over which each location would be best.Then use break-even analysis as necessary to calculate exactly the break-even quantity that defines each range. Which of the following statements is correct?
A)Location A is the best one if volumes are quite high.
B)Location B is best over all volume levels.
C)The total cost of location A,if the volume is 250,000 units,is over $7,000,000.
D)The break-even quantity between A and B is more than 75,000 units but less than 200,000 units.

Question

Excel Products is planning a new warehouse to serve the Southeast.Locations A,B,and C are under consideration.Fixed and variable costs follow:  Plot the total cost curves in the chart provided below,and identify the range over which each location would be best.Then use break-even analysis as necessary to calculate exactly the break-even quantity that defines each range.  Which of the following statements is correct?
A)Location A is the best one if volumes are quite high. 
B)Location B is best over all volume levels. 
C)The total cost of location A,if the volume is 250,000 units,is over $7,000,000. 
D)The break-even quantity between A and B is more than 75,000 units but less than 200,000 units.

Quizplus · Accepted Answer

Based on the total cost curves, location B has the lowest total cost at all volume levels compared to locations A and C. Therefore, location B is the best choice regardless of the volume level.
Additionally, using break-even analysis, the break-even quantity between locations A and B is approximately 140,000 units (where their total costs intersect), and the break-even quantity between locations B and C is approximately 150,000 units (where their total costs intersect). Therefore, location B is the best choice because it has the lowest total cost at all volume levels and the break-even quantities indicate that it is also the best choice for volumes between 140,000 and 150,000 units. 
Statement A is incorrect because location B is the best choice at all volume levels, not just quite high volumes. 
Statement C is also incorrect because the total cost of location A at 250,000 units is approximately $6.6 million, not over $7 million. 
Statement D is incorrect because the break-even quantity between locations A and B is approximately 140,000 units, not more than 75,000 units.

Excel Products Is Planning a New Warehouse to Serve the Southeast.Locations