Question

Check my work 1 Problem 8-1 A newly formed firm must decide on a plant location. There are two alternatives under consideration: locate near the major raw materials or locate near the major customers. Locating near the raw materials will result in lower fixed and variable costs than locating near the market, but the owners believe there would be a loss in sales volume because customers tend to favor local suppliers. Revenue per unit will be $173 in either case. 10 points Skipped Omaha Kansas City Annual fixed costs (S nillions) Variable cost per unit Expected annual demand (units) $1.2 1.3 $2338 9,550 10,150 eBook References Using the above information, determine which location would produce the greater profit. (Omit the "$" sign in your response.) Click to select) would produce the greater gross profit of $

Answer 1

Profit = ((Revenue – Variable cost) * Quantity) – Fixed cost

Given Revenue = 173

Omaha:

Profit = ((173-23)*9550) – 1000000                  

Profit = 432,500

Kansas City:

Profit = ((173-38)*10150) – 1200000

Profit = 170250

Omaha would produce the greater gross profit of 432500