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 $189 in either case.OmahaKansas CityAnnual fixed costs ($ millions)$1.0 $1.2 Variable cost per unit$30 $45 Expected annual demand (units)9,925 10,225 Using the above information, determine which location would produce the greater profit. (Omit the "$" sign in your response.)Omaha would produce the greater gross profit of $

Answer 1

Answer:

Omaha would produce the greater gross profit of

• $578,075

Explanation:

revenue per unit $189

two possible locations:

                                            Omaha                   Kansas City

fixed costs                          $1,000,000             $1,200,000

variable costs per u.               $30                             $45

expected sales                   9,925 units               10,225 units

expected profits:

                                                Omaha                   Kansas City

sales revenue                     $1,875,825                $1,932,525

- variable costs                   ($297,750)                 ($460,125)

- fixed costs                     ($1,000,000)             ($1,200,000)  

gross profit                           $578,075                   $272,400