A Manufacturer Is Considering Some Expansion Alternatives If the Forecast of Additional Demand for the Next Year

Multiple Choice

A manufacturer is considering some expansion alternatives. One is to increase the capacity at their current location. A second set of alternatives is to build a new plant at one of two possible locations. The projected operating costs have been estimated as follows: $\begin{array}{lccc}&\text { Expand at Current }\\\text { Cost Category }&\text { Location }&\text { Location A }&\text { Location B }\\\text { Fixed } & \$ 125,000 & \$ 225,000 & \$ 175,000 \\\text { Direct labor per unit } & \$ 32.5 & \$ 30 & \$ 33 \\\text { Direct material per unit } & \$ 16 & \$ 17 & \$ 15.50 \\\text { Overhead cost per unit } & \$ 2.90 & 2.40 & \$ 2.50 \\\text { Transportation cost per } 100 \text { units } & \$ 125 & \$ 100 & \$ 110\end{array}$ If the forecast of additional demand for the next year is 25,000 units, which alternative should be selected to minimize costs?

A) Expand at current location
B) Location A
C) Location B
D) None of the above