Question

A firm that has recently experienced an enormous growth rate is seeking to lease a small plant in Memphis, TN; Biloxi, 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 $40,000 for Memphis, $60,000 for Biloxi, and $100,000 for Birmingham. Labor and materials are expected to be $8 per unit in Memphis, $4 per unit in Biloxi, and $5 per unit in Birmingham. The Memphis location would increase system transportation costs by $50,000 per year, the Biloxi location by $60,000 per year, and the Birmingham location by $25,000 per year. Expected annual volume is 10,000 units. (Omit the "$" sign in your response.)

Answer 1

Answer:

Expected annual volume = 18400 units

For Memphis:

Annual cost for building ,equipment and administration = $42800

Annual labor and material cost =Annual volume x cost per unit = 18400 x $8 = $147200

Annual transportation cost = $50000

So,Total cost = $42800 + $147200 + $ 50000 = $240000

For Biloxi:

Annual cost for building ,equipment and administration = $60000

Annual labor and material cost =Annual volume x cost per unit = 18400 x $4 = $73600

Annual transportation cost = $60000

So,Total cost = $60000 + $73600 + $ 60000 = $193600

For Birmingham:

Annual cost for building ,equipment and administration = $100000

Annual labor and material cost =Annual volume x cost per unit = 18400 x $5 = 92000

Annual transportation cost = $27600

So,Total cost = $100000 + $92000 + $27600 = $219600

Explanation: