Question

2. The Fine Foods Distribution Company narrowed the search for a new facility location to seven communities. Annual fixed costs (land, property, taxes, insurance, equipment, and buildings) and variable costs (labour, materials, transportation, and variable overhead) are shown in below table.

1. Which of the communities can be eliminated from further consideration because they are dominated (both variable and fixed costs are higher) by another community?
2. Plot the total cost curves for all remaining communities on a single graph. Identify on the graph the approximate range over which each community provides the lowest cost.
3. Using break-even analysis, calculated the break-even quantities to determine the range over which each community provides the lowest cost.

Fixed and Variable Costs for Fine Food Distribution Company

Community	Fixed Costs	Variable Costs
Aurora	$1, 600,000	$17.00
Boulder	$2,000,000	$12.00
Cranbrook	$1,500,000	$16.00
Deerfield	$3,000,000	$10.00
Essex	$1,800,000	$15.00
Farber	$1,200,000	$15.00
Garfton	$1,700,000	$14.00

Answer 1

a) Communities eliminated -----

Communities eliminated	Dominated by
Aurora	Cranbrook
Essex	Farber
Cranbrook	Farber

b) Total cost curves of remaining communities-----

The question is silent about quantity sold ,so it is not possible to find total cost

Community	fixed cost($)	variable cost($)p/u	total cost($)
Boulder	2000000	12
Deerfield	3000000	10
Farber	1200000	15
Garfton	1700000	14

C) Break even analysis

The question is silent regarding selling price,so it won't be possible to find break even quantity for each community,

However formula to find Break even point--------

BEP( in units)= Total fixed cost/ contribution per unit(CPU)

contribution per unit(CPU)= selling price (S)-- variable cost p/u( VC)

so,BEP= TFC/CPU