managementA 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 $185 in either case. Using the following information, determine which location would
produce the greater profit.
<table style="border-collapse:collapse;border-spacing:0;border:none" class="tg"><thead><tr><th style="border-style:solid;border-width:0px;font-family:Arial, sans-serif;font-size:14px;font-weight:normal;overflow:hidden;padding:10px 5px;text-align:left;vertical-align:top;word-break:normal"></th><th style="border-style:solid;border-width:0px;font-family:Arial, sans-serif;font-size:14px;font-weight:normal;overflow:hidden;padding:10px 5px;text-align:center;vertical-align:top;word-break:normal">Omaha</th><th style="border-style:solid;border-width:0px;font-family:Arial, sans-serif;font-size:14px;font-weight:normal;overflow:hidden;padding:10px 5px;text-align:center;vertical-align:top;word-break:normal">Kansas City</th></tr></thead><tbody><tr><td style="border-style:solid;border-width:0px;font-family:Arial, sans-serif;font-size:14px;overflow:hidden;padding:10px 5px;text-align:left;vertical-align:top;word-break:normal">Annual fixed costs ($ millions)</td><td style="border-color:inherit;border-style:solid;border-width:0px;font-family:Arial, sans-serif;font-size:14px;overflow:hidden;padding:10px 5px;text-align:center;vertical-align:top;word-break:normal">$1.2</td><td style="border-style:solid;border-width:0px;font-family:Arial, sans-serif;font-size:14px;overflow:hidden;padding:10px 5px;text-align:center;vertical-align:top;word-break:normal">$1.4</td></tr><tr><td style="border-style:solid;border-width:0px;font-family:Arial, sans-serif;font-size:14px;overflow:hidden;padding:10px 5px;text-align:left;vertical-align:top;word-break:normal">Variable cost per unit</td><td style="border-color:inherit;border-style:solid;border-width:0px;font-family:Arial, sans-serif;font-size:14px;overflow:hidden;padding:10px 5px;text-align:center;vertical-align:top;word-break:normal">$36</td><td style="border-style:solid;border-width:0px;font-family:Arial, sans-serif;font-size:14px;overflow:hidden;padding:10px 5px;text-align:center;vertical-align:top;word-break:normal">$47</td></tr><tr><td style="border-style:solid;border-width:0px;font-family:Arial, sans-serif;font-size:14px;overflow:hidden;padding:10px 5px;text-align:left;vertical-align:top;word-break:normal">Expected annual demand (units)</td><td style="border-style:solid;border-width:0px;font-family:Arial, sans-serif;font-size:14px;overflow:hidden;padding:10px 5px;text-align:center;vertical-align:top;word-break:normal">8,000</td><td style="border-style:solid;border-width:0px;font-family:Arial, sans-serif;font-size:14px;overflow:hidden;padding:10px 5px;text-align:center;vertical-align:top;word-break:normal">12,000</td></tr></tbody></table> 2nd Edition•ISBN: 9781464113079David G Myers901 solutions
3rd Edition•ISBN: 9781319070502 (1 more)C. Nathan DeWall, David G Myers956 solutions
12th Edition•ISBN: 9780134163451 (3 more)Barry Render, Chuck Munson, Jay Heizer1,698 solutions
6th Edition•ISBN: 9780078692512McGraw-Hill Education3,760 solutions