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 $43,600 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 $25,800 per year. Expected annual volume is 13,000 units.Memphis: ___; Biloxi: ___; Birmingham: ___

Answer 1

Answer:

The annual costs for Memphis, Biloxi, and Birmingham is $197,600, $172,000 and $255,800 respectively

Explanation:

The computation of the total cost is shown below

For Memphis:

= Annual cost of fixed assets + (annual volume × Labor and materials per unit) + transportation cost

= $43,600 + (13,000 units × $8 per unit) + $50,000

= $197,600

For Biloxi:

= Annual cost of fixed assets + (annual volume × Labor and materials per unit) + transportation cost

= $60,000 + (13,000 units × $4 per unit) + $60,000

= $172,000

For Birmingham:

= Annual cost of fixed assets + (annual volume × Labor and materials per unit) + transportation cost

= $100,000 + (13,000 units × $5 per unit) + $25,800

= $255,800