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CMA Intermediate · Operations Management and Strategic Management · Operations Planning

A plant with fixed costs of Rs 6,00,000 per year and variable cost of Rs 150 per unit is compared with another plant with fixed costs of Rs 9,00,000 per year and variable cost of Rs 100 per unit. At what annual volume are the total costs of the two locations equal?

The two locations have equal total cost at 6,000 units. Equating 6,00,000 + 150Q with 9,00,000 + 100Q gives 50Q = 3,00,000, so Q = 6,000, where both cost Rs 15,00,000.

  1. A4,000 units
  2. B6,000 unitsCorrect
  3. C8,000 units
  4. D10,000 units

Explanation

Set 6,00,000 + 150Q = 9,00,000 + 100Q. Then 50Q = 3,00,000, so Q = 6,000 units. Check: 6,00,000 + 9,00,000 = 15,00,000 and 9,00,000 + 6,00,000 = 15,00,000. Above 6,000 units the second plant is cheaper.

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