A newly formed firm must decide on a plant location. There are two alternatives under consideration:...

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A newly formed firm must decide on a plant location. There are two alternatives under consideration: locate near the major ra

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Answer #1

OMAHA

FIXED COST = 1200000

VARIABLE COST = 35

PRICE PER UNIT = 185

EXPECTED VOLUME = 10150

PROFIT = UNITS * CONTRIBUTION MARGIN - FIXED COST

PROFIT = (10150 * (185 - 35)) - 1200000 = 322500

KANSAS

FIXED COST = 1000000

VARIABLE COST = 50

PRICE PER UNIT = 185

EXPECTED VOLUME = 10750

PROFIT = UNITS * CONTRIBUTION MARGIN - FIXED COST

PROFIT = (10750 * (185 - 50)) - 1000000 = 451250

KANSAS IS BETTER WITH A GROSS PROFIT OF 451250

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