You are trying to decide which of the following three cities in which to locate a new manufacturing facility, and you have gathered the following information about each: City Annual Fixed Cost Variable Cost (per unit)
Singapore $30,000 $2
Hong Kong $20,000 $3
Niagara Falls $10,000 $6

If this facility will produce 15,000 units annually, where should you locate it:

a. Hong Kong
b. either Hong Kong or Niagara Falls
c. Niagara Falls
d. either Singapore or Niagara Falls
e. Singapore

If this facility will produce 15,000 units annually, where should you locate it:

e. Singapore

Explanation:

a) Data and Calculations:

Annual Units of Production = 15,000

City                 Annual Fixed Cost   Variable Cost        Total Costs   Per Unit

                                                       (per unit)    Total                            in Total

Singapore                  $30,000           $2      $30,000   $60,000      $4.00

Hong Kong                $20,000           $3        45,000     65,000       $4.33

Niagara Falls              $10,000           $6       90,000   100,000       $6.67

b) The facility should be located at Singapore because it has the least total costs for producing 15,000 units.  Though, its fixed cost is highest, its variable cost per unit of $2 reduced the total costs to $60,000 annually.  This is the lowest among the three locations.  The implication is that variable costs and not fixed costs should determine the decision choice.

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