Question

A firm that has recently experienced an enormous growth rate is seeking to lease a small plant in Memphis, TN; Bloxi, MS; or Birmingham, AL. Prepare an economic analysis of the three locations given the following information: Annual costs for building, equipment, and administration would be $53,000 for Memphis, $63,000 for Biloxi, and $98,000 for Birmingham. Labor and materials are expected to be $7 per unit in Memphis, $4 per unit in Biloxi, and $4 per unit in Birmingham. The Memphis location would increase system transportation costs by $52,000 per year, the Biloxi location by $62,500 per year, and the Birmingham location by $24.800 per year. Expected annual volume is 13,800 units. (Omit the "$" sign in your response.) Memphis Biloxi Birmingham Total Cost $ $ $

Answer 1

Total cost for each location = Annual cost for building, equipment and administration

+ Labor and material cost per unit x Expected annual volume

+ increase in system transportation cost

.

Total cost for Memphis = 53000 + 7 x 13800 + 52000

= $ 201,600

.

Total cost for Biloxi = 63000 + 4 x 13800 + 62500

= $ 180,700

.

Total cost for Birmingham = 98000 + 4 x 13800 + 24800

= $ 178,000

.