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 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 $181 in either case. |
| Omaha | Kansas City | |||
| Annual fixed costs ($ millions) | $ | 1.1 | $ | 1.1 |
| Variable cost per unit | $ | 32 | $ | 46 |
| Expected annual demand (units) | 9,625 | 10,825 | ||
Homework Answers
Omaha
Profit = Revenue - Expense
= 181*9625 - (1100000 + 32*9625)
= $334125
Kansas City
Profit = 181*10825 - (1100000 + 46*10825)
= $361375
Kansas City should be selected based on the higher profit generated.
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A newly formed firm must decide on a plant location. There are
two alternatives under consideration:...
A newly formed firm must decide on a plant location. There are two alternatives under consideration:...
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 $181 in either case. Omaha Kansas City Annual fixed costs...
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