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 compared to 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 $183 in either case. Omaha Annual fixed costs ($ millions) Variable cost per unit Expected annual demand (units) 1.0 33 10,050 Kansas City $ $ Kansas City 0.9 $ $ 48 10,650 Click here for the Excel Data File Using the above information, determine which location would produce the greater profit. would produce the greater gross profit of

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
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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 compared to
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 $183 in either case.
Omaha
1.0
33
10,050
Annual fixed costs ($ millions)
Variable cost per unit.
Expected annual demand (units)
$
Kansas City
$
Kansas City
$ 0.9
$
48
10,650
Click here for the Excel Data File
Using the above information, determine which location would produce the greater profit.
would produce the greater gross profit of
Transcribed Image Text: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 compared to 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 $183 in either case. Omaha 1.0 33 10,050 Annual fixed costs ($ millions) Variable cost per unit. Expected annual demand (units) $ Kansas City $ Kansas City $ 0.9 $ 48 10,650 Click here for the Excel Data File Using the above information, determine which location would produce the greater profit. would produce the greater gross profit of
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