Question

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)	$	1.2	$	1.1
Variable cost per unit	$	31	$	46
Expected annual demand (units)		9,950		10,550

Using the above information, determine which location would produce the greater profit. (Omit the "$" sign in your response.)

Which city would produce the greater gross profit of $ .

Answer 1

Break-even analysis is a technique by which business identify the sales volume when the total cost and total revenue is equal. So, the company neither makes profit nor loss.

Break-even analysis is important for business because it help in drafting good business plan by determining cost structure and the volume required to cover the cost in order to make profit.

Total revenue - Revenue per unit x volume Total cost - Finced cast + (variable cost & volume) per cenit Let the volume be no TR = 1810 Tomaha = 1200,000 + 310 1 Kansas city = 1100000 + 46r El Profit = TR - TO Thoretamaha = 18126 - 3110 #1200000 : 150 ze - 1200000 = 181 n - 461 - 1100000 135 r - 11OOOOO Polafit raha = (150 x 9950) - 1200000 - 1492 500 - 1200000 - $ 292,500 Profit Kansas city = (135 x 10550) - 1100000 1 - 1424250 - 100000 19 324250 Kawasas city would produce the greater gross profit