Question

A producer of pottery is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have the following cost structures as shown in the table. The producer knows there is a big order or order contract that will be awarded by the giant retail WalWal. The producer is not certain as what capacity production is to produce. It all depends on WalWal’s contract. The producer has also been informed, the first batch of pottery is required to ship in a very tight time frame from the first production run. The producer decides to plan ahead and select the best production process to set up for manufacturing.
  

	Process 1	Process 2	Process 3
Ann. Fixed Cost $	9,835	15,681	6,589
variable cost $/unit	0.76	0.61	1.15

The producer wants you to help them to identify at what range of production quantity (Q) for Process 1, Process 2, and Process 3 is best to adopt.

Enter Q range with whole number and use signs such as <= and >= to describe greater or less than equal to. Ex. 1234 < Q <= 5678

a) The range of annual Q for which Process 1 is best to use is:  

b) The range of annual volume for which Process 2 is best to use is:  

c) The range of annual volume for which Process 3 is best to use is:

Answer 1

Total Cost = fixed cost + ( volume * variable cost )

Volume is represented by Q.

Upper volume range for process 1 = (15681 - 9835)/(0.76 - 0.61) = 38973

Upper volume range for process 3 = (9835 - 6589)/(1.15 - 0.76) = 8323

Volume (Q)	Process 1 , TOTAL COST ($)	Process 2 TOTAL COST ($)	Process 3 TOTAL COST ($)
0	9835	15681	6589
8323	16161	20758	16161
38973	39455	39455	51408

The range of annual Q for which process 1 is best to use is ​​​​​​:

8323 < Q <= 38973

the range of annual volume for which process 2 is best to use is :

38973 < Q

the range of annual volume for which process 3 is best to use is :

0 < Q < = 8323