Question

In: Operations Management

A newly formed firm must decide on a plant location. There are two alternatives under consideration:...

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 $175 in either case.

Omaha Kansas City
Annual fixed costs ($ millions) $ 1.0 $ 1.1
Variable cost per unit $ 25 $ 40
Expected annual demand (units) 9,650 10,250

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

(Click to select)Kansas CityOmaha would produce the greater gross profit of $ .

Solutions

Expert Solution

Omaha

Profit = Total Revenue - Total Expense

= Selling Price * Volume - (Fixed Cost + Variable Cost)

= 175*9650 - (1000000 + 25*9650)

= $447500

Kansas City

Profit = 175*10250 - (1100000 + 40*10250)

= $283750

Omaha will produce the greater profit

Omaha would produce the greater gross profit of $447500

Please provide upvotes, in case you are satisfied with the eesponse. Comment in case of any issues regarding the response.

keosha answered 2 years ago
Next > < Previous

Related Solutions

A newly formed firm must decide on a plant location. There are two alternatives under consideration:...
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 $177 in either case. Omaha Kansas City Annual fixed costs...
The Thunderbird Winery must replace its present grape pressing equipment. Two alternatives are under consideration, the...
The Thunderbird Winery must replace its present grape pressing equipment. Two alternatives are under consideration, the Quick-Skwish and the Stomp-Master. The Thunderbird Winery has a Minimum Attractive Rate of Return of 4%. Which machine should be chosen? (use NPW Method) Quick-Skwish Stomp-Master Initial Cost $250,000 $400,000 1st Year Operating Expense $ 18,000 $ 12,500 Operating Expense Gradient (begins in year 2) $2000 $1,000 Salvage Value $ 25,000 $ 40,000 Useful Life (years)           5            10 Complete the problem using...
The two ME alternatives shown are under consideration for facility improvements in a company in Abu...
The two ME alternatives shown are under consideration for facility improvements in a company in Abu Dhabi. Determine which one should be selected based on a B/C analysis. Assume an interest rate of 10% per year and a 5-year study period.                                                                                                            Alternative X Alternative Y First costs, AED 40,000 90,000 Annual M&O costs, AED per year 50,000 20,000 Benefits, AED per year 120,000 150,000 Disbenefits, AED per year 30,000 10,000 Match the closest correct answers for the below questions:...
Before investing in a foreign location, a firm must take three things into consideration: the costs,...
Before investing in a foreign location, a firm must take three things into consideration: the costs, benefits, and risks (political, economic, or legal) associated with entering into a business venture there. Imagine you are the manager of a foreign company considering an investment in your home town. What would be some of the expected costs, benefits, or risks of starting a new business where you live? How high would you rate your location on its overall attractiveness to investors? Note...
Two alternatives are under consideration. The first alternative will cost $100,000, require $20,000 in maintenance and...
Two alternatives are under consideration. The first alternative will cost $100,000, require $20,000 in maintenance and operation costs each year, and a life cycle of 4 years. The second alternative will cost $300,000, require $5,000 in maintenance and operation costs each year and a life of 6 years. Neither option will have a salvage value. In order to compute the present worth or future worth, how many years of each alternative should I use to accurately compare the two alternatives.
A piece of equipment now is use at a plant is under consideration for replacement. It...
A piece of equipment now is use at a plant is under consideration for replacement. It has a market value of 8,000. This market value is expected to decline by 50% per period (from the previous period) until it reaches zero at the end of period 3. The estimated operating and repair cost for the next period is 26,000 and this is expected to grow at a rate of 15 percent per period. A replacement has been located that will...
Congratulations, you just won the lottery. Now you must decide between two alternatives to receive your...
Congratulations, you just won the lottery. Now you must decide between two alternatives to receive your winnings. The first option is to take the lump sum amount offered today. The second option is to accept a series of equal payments over the next 20 years. Explain how you would set up your calculations that would allow you to select the best alternative .
Five mutually exclusive cost alternatives that have infinite lives are under consideration for decreasing the fruit-bruising...
Five mutually exclusive cost alternatives that have infinite lives are under consideration for decreasing the fruit-bruising rates of a thin skin-fruit grading and packing operation (peaches, pears, apricots, etc.). The initial costs and cash flows of each alternative are available. If the MARR is 15% per year, the one alternative to select is: Alternative A B C D E Initial cost, $ −15,000 −12,000 −9,000 −14,000 −11,000 Cash flow, $ per year −300 −900 −1400 −700 −1000 A B D...
There are two firms, Cope and Peski, in an oligopolistic industry. Each firm must decide whether...
There are two firms, Cope and Peski, in an oligopolistic industry. Each firm must decide whether or not to advertise during the Super Bowl this year. The diagram below represents the matrix of expected profit payoffs for each firm depending on which of the four possible outcomes becomes reality. The first number in each cell represents the expected profit for Peski given the relevant combination of strategies for each firm. The second number in each cell represents the expected profit...
(a) Explain the following statement under the Malaysian Contract Law : “Consideration must be sufficient but...
(a) Explain the following statement under the Malaysian Contract Law : “Consideration must be sufficient but need not be adequate.” (b) Budget Travels, booked Hotel Kedekut for a 2 day health event for their staff. All the itinerary and the food to be served were confirmed already. The chef of Hotel Kedekut, who knows the manager of Budget Travels, Michael, very well has decided to make pastries and cupcakes for the health event on his own. The event was a...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT