Problem 8-1 A newly formed firm must decide on a plant location. There are two a

Question

Problem 8-1 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 $17 in either case. Omaha Kansas City Variable cost per unit Expected annual demand (units) Annual fixed costs ( millions) 0.91.0 $ 28 43 9,800 10, 400 Using the above information, determine which location would produce the greater profit. (Omit the "$" sign in your response.) Omahawould produce the greater gross profit of 470,000

Explanation / Answer

For Omaha,

For Kansas city

So Omaha would produce the greater gross profit of $570000

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