A firm that has recently experienced an enormous growth rate is seeking to lease
ID: 355430 • Letter: A
Question
A firm that has recently experienced an enormous growth rate is seeking to lease a small plant in Memphis, TN; Biloxi, MS; or Birmingham, AL. Prepare an economic analysis of the three locations given the following information: Annual costs for building, equipment, and administration would be $38,800 for Memphis, $60,000 for Biloxi, and $100,000 for Birmingham. Labor and materials are expected to be $8 per unit in Memphis, $4 per unit in Biloxi, and $5 per unit in Birmingham. The Memphis location would increase system transportation costs by $50,000 per year, the Biloxi location by $60,000 per year, and the Birmingham location by $27,400 per year. Expected annual volume is 19,000 units.(Omit the "$" sign in your response.)
Explanation / Answer
Total cost = Annual building, equipment etc + annual transportation + total labor and materials cost
Memphis:
annual building, equipment etc cost = 38800
annual transportation = 50000
total labor and materials cost = unit cost*volume = 8*19000 = 152000
Total cost = 38800 + 50000 + 152000 = 240800
Biloxi:
annual building, equipment etc cost = 60000
annual transportation = 60000
total labor and materials cost = unit cost*volume = 4*19000 = 76000
Total cost = 60000 + 60000 + 76000 = 196000
Birmingham:
annual building, equipment etc cost = 100000
annual transportation = 27400
total labor and materials cost = unit cost*volume = 5*19000 = 95000
Total cost = 100000 + 27400 +95000 = 222400
According to the calculations above we find that total cost for memphis is 240800, Biloxi is 196000 and Birmingham is 222400. According to this Biloxi has the least cost followed by Birmingham and lastly Memphis.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.