Help Save&Ex Problem 8-1 A newly formed fem must decide on a plant location. The

Question

Help Save&Ex Problem 8-1 A newly formed fem must decide on a plant location. There e are two alternatives under consideration locate near the major ravw near the major customers Locating near the raw materials wil result in lower fxed and variable costs than near the market, but the owners believe there would be a loss in sales volume because Revenue per unit will be $170 in either case. Annusl fixed costs(s ions) Variable cest per unit Expected annual demand (units) above information, determine which location would prodce the greater profit (Omit the-s-sign in your respone) selct would produce the greater gross proft of s

Explanation / Answer

Ans:

Calculation of gross profit from each location.

Omaha would produce the greater gross profit of $510,000.

Particulars Omaha Kanses City Revenue (Expected annual demand * $170) $1,598,000 $1,700,000 $1,700,000 Less:Fixed cost ($900,000) ($1,000,000) (1,000,000) Less:Variable cost (Expected annual demand * variable cost per unit) ($188,000) ($350,000) ($350,000) Gross Profit $510,000 $350,000 $350,000

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