(Solved): Production improvement option B (with capital costs of \( \$ 1.6 \) million per million pairs of pr ...

Production improvement option B (with capital costs of \( \$ 1.6 \) million per million pairs of production capacity and annual depreciation costs of \( 10 \% \) ) that reduces production run setup costs by \( 50 \% \) each year makes the most economic sense in which one of the following circumstances? Company managers expect to produce 350 models/styles and 4 million pairs of branded footwear on an ongoing basis at a new 4-million pair capacity facility in Latin America--annual production run setup costs for 350 models of branded footwear are \( \$ 9 \) million. Company managers expect to produce 200 models/styles and 3 million pairs of branded footwear on an ongoing basis at a 3million pair capacity facility in Europe-Africa--annual production run setup costs for 200 models are \( \$ 4.5 \) million. Company managers expect to produce 100 models/styles and 6 million pairs of branded footwear on an ongoing basis at a 6million pair capacity facility in the Asia-Pacific--annual production run setup costs for 100 models of branded footwear are \( \$ 2 \) million. A company's strategy is to pursue actions that will reduce production costs per pair produced at each of its production facilities to as low a level as possible--lowering production run setup costs helps achieve this strategic objective; therefore, installing option B should be done at each of the company's production facilities, irrespective of facility capacity and number of models to be produced. Company managers expect to produce 400 models/styles and 3.6 million pairs of branded footwear on an ongoing basis at a 3million pair capacity facility in Europe-Africa--annual production run setup costs for 400 models are \( \$ 10.75 \) million.