Reference no: EM13454605

The Blair Company's three assembly plants are located in California, Georgia and New Jersey. Previously the company purchased a major subassembly, which becomes part of the final product, from an outside firm. Blair has decided to manufacture the subassemblies within the company and must now consider whether to rent one centrally located facility. (e.g. in Missouri, where all  the subassemblies would be manufactured)or to rent three separate facilities each located near one of the assembly plants, where each facility would manufacture only the subassemblies needed for the nearby assembly plants. A single centrally located facility with a production capacity of 18,000 units per year, would have a fixed costs OF $900,000 per year and a variable cost of $250 per unit. Three separate decentralized facilities, with production capacities of 8,000, 6,000 and 4,000 respectively and variable costs per unit of only $225 per unit, owing primarily to the reduction in shipping costs. The current production rate at the three assembly plants are 6,000, 4,500 and 3,000 units respectively

a. Assuming that the current production rate are maintained at the three assembly plants, which alternative should management select?