Location 1: Total cost = 80,000 + 19.3x — Cunningham Products evaluating five possible locations build distribution center Data estimated from

Cunningham Products is evaluating five possible locations to build a distribution center. Data estimated from the accounting department are provided below. The annual production is estimated to be 25,000 units.

a. Which location provides the least cost?

b. For what range of demand would each location be best?

SOLUTION

a. For each location, the total cost is equal to the fixed cost plus the variable cost per unit times the annual volume.

Location 1: Total cost = 80,000 + 19.3x