Business owners need to be cognizant of the many costs that surround the construction of a firm. Because all costs are not the same, they are different. Some costs should be evaluated for purpose of making a business decision. The objective of this paper is to take into consideration of various cost behaviors while attempting to analyze and examine costs that are required to open new plant or plants for Jiffy Wiffy Company. Jiffy Wiffy Company is the firm which is owned by Greg and Dem to produce pop-tarts and power-tarts. The company is in the growth stage and sale has been averaged 10,000, 5,000, and 2,000 bars per week in Washington DC, New York City, and Los Angeles respectively (Sloboda, 2005). In response to high demand of its pop-tarts and power-tarts in those three major markets, Jiffy Wiffy has to open new plant to produce pop-tarts and power-tarts.
There are many options available to the company; however, Jiffy Wiffy is narrow its choice to the following two plans.
* Alternative Plan I: There will be a single plant to make the tutti fruitti pop-tarts and Power Tarts. The plant has the capacity to make 20,000 bars a week at a fixed cost of $5,000 per week and weekly variable costs of 70 cents per bar
* Alternative Plan II: There will be 3 plants, one in each market to save shipping cost. Each plant has the capacity to make 12,000, 6000, and 3,000 bars with weekly fixed costs of $4,000, $3000, and $2000 per week and weekly variable costs of 60 cents per bar
Fixed Costs and Variable Costs
One important detail that needs to be considered when evaluating a cost is its behavior, and how it changes in response to a change in activity level (Compton &...