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 following table:

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

a.Plot the total cost curves for all the communities on a single graph (see Solved Problem 2). Identify on the graph the range in volume over which each location would be best.

(See Solved Problem 2 at the very bottom of all questions).

b.What break-even quantity defines each range? 3- Month Average Method

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 following table shows those projections:

Location Price per Pair Forecast Demand per Year

Aspen $500 $60,000 pairs

Medicine Lodge $350 $45,000pairs

Broken Bow $350 $43,000 pairs

Wounded Knee $350 $40,000 pairs

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?

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Here is Solved Problem 2:

West Gorham High School is to be located at the population center of gravity of three communities: Westbrook, population 16,000; Scarborough, population 22,000; and Gorham, population 36,500.

Westbrook is located at43.6769N, 70.3717 W; Scarborough is located at43.5781N, 70.3222W; and Gorham is located at43.6795N, 70.4447W.