Evaluate 7.2 Problem 4

Fall-Line, Inc., is a Great Falls, Montana, manufacturer of a variety of downhill skis. Fall-Line is considering four locations for a new plant: Aspen, Colorado; Medicine Lodge, Kansas; Broken Bow, Nebraska; and Wounded Knee, South Dakota. Annual fixed costs and variable costs per pair of skis are shown in the attached table.
a. Plot the total cost curves for all of the communities on a single graph. Identify on the graph the range in volume over which each location would be best.
b. What break-even quantity defines each range?
Although Aspen’s fixed and variable costs are dominated by those of the other communities, Fall-Line believes that both the demand and the price would be higher for skis made in Aspen than for skis made in the other locations. The attached table also shows those projections.
c. Determine which location yields the highest total profit per year.
d. Is this location decision sensitive to forecast accuracy? At what minimum sales volume does Aspen become the location of choice?

Sheet1

Location

Aspen

Medicine Lodge

Broken Bow $350

Wounded Knee $350

	Location	Annual Fixed Costs	Variable Cost per Pair
	Aspen	$8,000,000	$250
	Medicine Lodge	$2,400,000	$130
	Broken Bow	$3,400,000	$90
	Wounded Knee	$4,500,000	$65
Price per Pair	Forecast Demand per Year
$500	60,000 pairs
		$350	45,000 pairs
43,000 pairs
40,000 pairs

Sheet2

Sheet3