Chapter 8 Homework
xlsx
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School
University of Wisconsin, Stout *
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Course
200
Subject
Industrial Engineering
Date
Dec 6, 2023
Type
xlsx
Pages
4
Uploaded by nadiareese1
P = D x (R - VC) - FC
Profit of Omaha = 8,000 x (185 - 36) - 1,200,000
Profit of Kansas City = 12,000 x (185 - 47) - 1,400,000
Kansas City would produce the greater gross profit
A newly formed firm must decide on a plant location. There are two alternatives under consider-ation: 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 compared to locating near the market, but the owners believe there would be a loss in sales volume because customers tend to favor local suppli-ers. Revenue per unit will be $185 in either case. Using the following information, determine which location would produce the greater profit.
a. At what volume of output would the two locations have the same total cost?
Indifference point = ($920,000 - $800,000) / ($14,000 - $13,000)
b. For what range of output would location A be superior? For what range would B be superior?
Not sure how to solve for this
A small producer of machine tools wants to move to a larger building, and has identified two alter-natives. Location A has annual fixed costs of $800,000 and variable costs of $14,000 per unit; loca-tion B has annual fixed costs of $920,000 and variable costs of $13,000 per unit. The finished items sell for $17,000 each.
Indifference point = 120 units
Memphis Total Cost:
40,000 + 50,000 = $90,000
90,000 + 8(10,000) = 170,000
Biloxi Total Cost:
60,000 + 60,000 = $120,000
120,000 + 4(10,000) = 160,000
Birmingham Total Cost:
100,000 + 25,000 = $125,000
125,000 + 5(10,000) = 175,000
A firm that has recently experienced enormous growth 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 loca-
tion 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.
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Location A Composite Score:
(.15x80)+(.20x72)+(.18x88)+(.27x94)+(.10x98)+(.10x96)=87.02
Location B Composite Score:
(.15x70)+(.20x76)+(.18x90)+(.27x86)+(.10x90)+(.10x85)=82.62
Location C Composite Score:
(.15x60)+(.20x92)+(.18x90)+(.27x80)+(.10x82)+(.10x75)=80.90
The location with the maximum composite score is Location A, with a score of 87.02.
Using the following factor ratings, determine which location alternative (A, B, or C) should be chosen on the basis of the maximum composite score.