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

Question

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 $189 in either case.

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

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 $189 in either case.

Explanation / Answer

PROFIT AT OMAHA

=9350*(189-32) - 1000000

= 467950

PROFIT AT KANAS CITY

= 11450*(189-46) - 1000000

=637350

KANAS CITY would produce the greater gross profit of $

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