A firm that has recently experienced an enormous growth rate is seeking to lease

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 $40,000 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 $25,000 per year. Expected annual volume is 10,000 units.

Memphis_____ Total Cost

Biloxi ______ Total Cost

Birmingham_______Total Cost

Explanation / Answer

Memphis Total Cost = $40,000 + $8(10,000 units) + $50,000 = $170,000

Biloxi Total Cost = $60,000 + $4(10,000 units) + $60,000 = $160,000

Birmingham Total Cost = $100,000 + $5(10,000 units) + $25,000 = $175,000

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