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Business, 06.05.2020 00:45 aklilrodowx1q5

A company that produces pleasure boats has decided to expand one of its lines. Current facilities are insufficient to handle the increased workload, so the company is considering three alternatives, A (new location), B (subcontract), and C (expand existing facilities). Alternative A would involve substantial fixed costs but relatively low variable costs: fixed costs would be $300,000 per year, and variable costs would be $300 per boat. Subcontracting would involve a cost per boat of $2,900, and expansion would require an annual fixed cost of $64,000 and a variable cost of $1,800 per boat. Expansion would result in an increase of $91,000 per year in transportation costs, subcontracting would result in an increase of $31,000 per year, and adding a new location would result in an increase of $6,200 per year. Which alternative would yield the lowest total cost for an expected annual volume of 100 boats?

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